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Forex Today: Cautious start to week ahead of Fed Chairman Powell speech

Here is what you need to know on Monday, July 15:

Markets have started the new week in a cautious manner following news of an assassination attempt on former President Donald Trump. The economic calendar will not feature any high-impact data releases on Monday. Later in the American session, Federal Reserve (Fed) Chairman Jerome Powell will be delivering a speech at the Economic Club of Washington.

US Dollar PRICE Last 7 days

The table below shows the percentage change of US Dollar (USD) against listed major currencies last 7 days. US Dollar was the weakest against the Japanese Yen.

 USDEURGBPJPYCADAUDNZDCHF
USD -0.62%-1.33%-1.80%-0.06%-0.56%0.66%-0.17%
EUR0.62% -0.51%-0.88%0.88%0.22%1.63%0.79%
GBP1.33%0.51% -0.41%1.42%0.73%2.15%1.31%
JPY1.80%0.88%0.41% 1.78%1.28%2.67%1.72%
CAD0.06%-0.88%-1.42%-1.78% -0.54%0.72%-0.09%
AUD0.56%-0.22%-0.73%-1.28%0.54% 1.41%0.57%
NZD-0.66%-1.63%-2.15%-2.67%-0.72%-1.41% -0.83%
CHF0.17%-0.79%-1.31%-1.72%0.09%-0.57%0.83% 

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).

Following the sharp decline seen in the second half of the previous week, the US Dollar Index stays in a consolidation phase above 104.00 in the early European session on Monday. The benchmark 10-year US Treasury bond yield fluctuates above 4.2% and US stock index futures trade modestly higher. 

During the Asian trading hours, the data from China showed that the Gross Domestic Product (GDP) expanded at an annual pace of 4.7% in the second quarter. This reading followed the 5.3% growth recorded in the first quarter and came in worse than the market expectation for an expansion of 5.1%. Meanwhile, Retail Sales grew 2% on a yearly basis in June, falling short of analysts' estimate of 3.3%, and Industrial Production expanded 5.3%, down from 5.6% in May.

AUD/USD fluctuates in a tight channel slightly below 0.6800 following the disappointing Chinese data.

EUR/USD gained more than 0.6% last week and registered its highest weekly close since early March. The pair stays in a consolidation phase and trades at around 1.0900 in the European morning on Monday.

GBP/USD rose more than 1% for the second consecutive time last week and touched a yearly high. The pair currently trades in a tight channel slightly below 1.3000.

Following the upsurge seen on Thursday, Gold struggled to preserve its bullish momentum and registered small losses on Friday. Nevertheless, XAU/USD manages to hold steady above $2,400 at the beginning of the week. 

After suffering heavy losses in the second half of the previous week, USD/JPY finds it difficult to stage a recovery. The pair was last seen trading modestly lower on the day below 158.00.

Risk sentiment FAQs

In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.

Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.

The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.

The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.

Author

Eren Sengezer

As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.

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