The Forex Week Ahead

The Forex Week Ahead 17th – 21st July

The Forex Week Ahead: USD Data risk will be sparse to non-existent. What little there is will be focused upon the industrial sector including July readings for the Philly Fed gauge on Thursday and the Empire manufacturing gauge on Monday. Housing starts for June arrive Wednesday. The US Treasury auctions 10 year TIPS on Thursday. Political headlines could also weigh on the Dollar without any major economic news this week to offset the sense of dysfunction in Washington.

EUR Who precisely are these anonymously referenced ECB officials who keep feeding leaks that contradict the boss? The latest batch of unconfirmed remarks sets a somewhat awkward backdrop into next Thursday’s ECB meeting. This past week brought out into the open two conflicting accounts of where ECB policy may be headed into 2018. In the one nest is the uber-dovish recent perspective of ECB Governing Council member Ilmars Rimsevics who stated that the QE asset purchase program is unlikely to be unwound any time soon: “We see that it’s planned that inflation could grow about 1.5% this year and 1.3% next year that means that this medium term goal of reaching 2% won’t be reached, that means that this program could continue for at least few years.” In the other nest were the anonymous hawkish officials reported by the WSJ to have said that ECB President Mario Draghi will attend the Fed’s annual Jackson Hole symposium next month and the unconfirmed bias is reported to be to reinforce confidence in the Eurozone’s recovery and less need for monetary stimulus. Doubt we’ll hear that line next week as opposed to continued messaging regarding how it is too soon to have this dialogue with growth improving but inflation still at bay. That said, market concerns over sliding inflation have very modestly ebbed of late which is tentatively constructive to the inflation picture to the extent to which market signals matter to the ECB.

GBP UK CPI for June (Tuesday) will be watched for signs of stabilization but it’s probably too early for that. After core CPI ran up from a low of 0.4% YoY way back in April 2015 to the 1.2% range by late last summer, the renewed acceleration to 2.6% YoY in May could begin to reflect topping-out influences over the back half of this year. Consensus expects headline inflation to keep rising to the 3% quarterly average mark by the end of this year before it begins to ebb but remain above the 2% inflation target throughout next year. BoE MPC member Ian McCafferty recently noted the time may have come to revisit guidance that QE should be unwound only once the bank rate approaches 2% as an alternative potential way of tightening monetary policy through signals other than overt rate hikes.

JPY Thursday’s Bank of Japan meeting is expected to stay the course on broad policy levers. After having recently increased bond purchases in the three to five year section of the JGBs curve in order to contain mild upward pressure upon yields, it’s clear that the central bank is still focused upon its existing policy apparatus. We might see modest upward revisions to growth forecasts.

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