The Forex Week Ahead

The Forex Week Ahead: August 1st – August 5th

Mon: CNY – Manufacturing PMI, USD – ISM Manufacturing
Tue:  AUD – Trade Balance, Building Approvals, RBA Rate Decision, NZD – RBNZ 2yr Inflation Expectations, JPY – Consumer Confidence, NZD – Dairy Auctions, USD – PCE Core, NZD – Unemployment Rate
Wed: CNY – Services & Composite PMIs, GBP – Services & Composite PMIs, EUR – EZ Retail Sales, USD – ISM Non-Manufacturing, Crude Oil Inventories
Thu: EUR – EZ Retail PMI, GBP – BOE Rate Decision, USD – Factory Orders & Durable Goods Orders
Fri: AUD – RBA Monetary Policy Statement, USD – Unemployment Rate, NFPs, Average Hourly Earnings, Trade Balance, CAD – Unemployment Rate

Overview

USD Despite a mildly positive tone to the July FOMC statement which saw the Fed citing diminished near term economic risks, USD weakened as the Fed stopped short of giving markets a timing signal for rate hike instead reiterating that they feel only very gradual increases in the fed funds rate will be appropriate and that the rate is likely to stay at low levels for a long time. Data put further pressure on USD as durable goods orders extended their declines and pending home sales rose less than forecasted in June. Durable goods orders tumbled 4.0% MOM in June amid a sharp decline in capital goods orders and showed lacklustre investment that will remain a drag on 2Q growth with US manufacturing and jobless claims also taking a turn for the worse. On Friday both Personal Consumption and GDP printed below expectations. Key focus this week falls on the July employment reports due on Friday with USD bulls looking for further upside momentum.

EUR A slew of confidence indicators staged surprised upticks in July, signalling immediate impact from Brexit may be more contained although longer run downside risks remain valid. Economic confidence index was up 0.2 point to 104.6 this month while business climate indicator edged 0.17 point higher to 0.39. July EuroZone CPI Estimates came in stronger than expected on both headline and core readings at 0.2% vs 0.1% and 0.9% vs 0.8% respectively whilst EuroZone Q2 GDP also beat expectations to print 1.6% vs 1.5%. This positive data further reduces the likelihood of near term ECB easing.

GBP The UK economy grew more than expected before Brexit but may mark a directional turn from stable growth as the vote last month delivered an immediate blow to business and consumer sentiment. The country expanded 0.6% QoQ in 2Q which was quicker than the 0.40% QoQ pace in 1Q as industrial production registered its biggest increase since 1999. UK’s average house prices climbed 5.2% YOY to £ 205.7k in July (June: +5.1% YOY) according to Nationwide Building society but momentum in Britain’s property market may slow after Brexit. Despite low mortgage rates and housing supply shortages, a turn in homebuyer’s sentiment weighed down by Brexit could soften demand for homes in the near term. Focus this week will be on the August BOE meeting with markets keenly waiting to see which course of action the BOE chooses to take.

JPY BOJ severely disappointed highly expectant markets with their lacklustre policy adjustment in July which saw rates kept on hold at -0.1% and monetary base left unchanged at Y80trln. An increase in ETF purchases from Y3.3trln to Y6trln did little to reassure markets and saw JPY rallying in response. Japan’s Prime Minister Shinzo Abe said that the government will roll out stimulus package worth 28 trillion yen ($ 265.3 billion) which include 13 trillion yen in “fiscal stimulus” comprises of spending by national and local governments as well as loan programs.

AUD Consumer prices rose at the slowest annual pace since 1999 last quarter while core inflation kept at a record low of 1.5%, well under the Reserve Bank of Australia’s (RBA) target band of 2 to 3% and thus keeping pressure on the RBA ahead of their meeting next week with traders expecting that the low inflation could prompt the central bank to cut interest rates once more when they meeting for their August meeting this week.

CAD The Canadian Dollar was pressured over the week as growing over-supply concerns pushed Oil prices down to a new 3 month low.An increasing amount of banks and analysts are slashing their Oil forecasts for the year in line with expectations for diminished demand. Domestic GDP data on Friday printed 1% YoY vs expectations of 1.2% putting further pressure on the currency. Traders now turn to domestic Unemployment Rate data on Friday.