The Forex Week Ahead

The Forex Week Ahead: USD Data risk moves in just as the politicians head out of town for the recess centred around Tuesday’s Independence Day holiday during which of course markets will be closed. Fed-speak is likely to be the week’s main events. There are three key things to would watch over the coming week and at the centre of them is Fed speak. First will be minutes to the June 14th FOMC meeting when the Fed decided to raise its Fed funds target rate range by 25bps, introduced details of its reinvestment reduction plans and guided that it is looking through a transitory soft-patch to inflation readings. Markets may be particularly tuned in to what the discussion reveals by way of a) the degree of agreement over whether falling core inflation is a transitory phenomenon, and b) more needed details on why the Fed believes this to be the case given they haven’t done a good job of communicating on this point other than to simply say so! That may also be a point of emphasis in the July 2017 Monetary Policy Report to Congress on Friday to potentially end the week with a bang. Fedspeak will also include an address by Fed Vice Chair Stanley Fischer on government policy and productivity (Thursday), a speech by Governor Powell on housing finance reform, and talks by regional Presidents Bullard (nonvoting 2017, alternate 2018) and Williams (alternate 2017, voting 2018). The second thing to watch will be the pace of job growth evidenced by Friday’s nonfarm report for June and the ADP report two days beforehand. Nonfarm payrolls have averaged only 121,000 new jobs over the past three months with the high being 174k in April and the low being March’s 50k. We expect a bit of a rise coming out of a hiring soft patch. Third will be the pace of wage gains in Friday’s numbers. After dropping from a high of 2.9% y/y in December, wage growth sat at 2.5% in May. Real wage growth is all but non-existent. Will wage growth stabilise in the June report or continue to drift lower and thus further reinforce sagging inflation measures?

EUR After very strong readings from Germany and France, we’ll get the Eurozone add-up for retail sales on Wednesday which should offer a favourable assessment of the consumer sector for the month of May. Industrial output gets updated by Germany, France and Spain decent gains are expected in most cases with Germany a possible exception after a strong prior gain. The flip side to German data, however, is expected to be that factory orders should rebound nicely from a 2.1% drop in April and restore growth.

GBP The UK stands the best chance of delivering impactful data when the purchasing managers indices for manufacturing and construction (Monday), services and the composite reading (Wednesday) all arrive. Traders, especially in light of recent hawkish comments form the BoE, would likely look favourably on any upside surprises to U.K. data.

JPY Japan’s quarterly Tankan survey of large manufacturers’ sentiment will headline the week’s economic calendar. A solid reading of the key gauge of sentiment would likely support the JPY, but gains may ultimately remain limited ahead of a busy week of data in the U.S.

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