Week Ahead: Trading Outlook

Key Events This Week: June 22nd – June 26th

USD: Durable Goods – Tues
JPY: CPI Friday

Overview

  • USD Well USD bulls didn’t have much hope going into the June rate decision but were at least expecting to have some positive guidance on a lift-off date given recent improvements in US economic data. However, this was not the case and the FOMC saw the Fed strike a decidedly more dovish tone, lowering their 2015 GDP forecast and stating that they need more “decisive evidence” of economic growth to consider rate hikes whilst also downplaying the importance of the first rate hike. Markets immediately began pricing out a September rate hike, but we could still see a September lift-off if data is supportive between now and then. Further reductions of USD longs amidst low liquidity saw some initial spikes which have mostly been reversed.
  • EUR The situation in Greece has muted the EUR positive effects of the dovish FOMC. A deal was not reached last Thursday as had been hoped and reports around the situation have remained sensational and alarmist. However, EUR held up pretty well with market participants remaining positive that Greece will stay in the EZ. An all-day emergency meeting on Monday will be the key driver of EURUSD as we start the week.
  • GBP Enjoyed another strong week supported by better UK data and then of course the dovish FOMC. UK CPI came back out of deflation (as the BOE anticipated) printing in-line with 0.1% expectations. We then saw the BOE MPC minute strike a much more hawkish tone citing an expectation for inflation to pick up considerably toward the back end of 2015 with BOE’s Forbes forecasting UK rate hikes in the “not too distant future”. Strong average earnings and better retail sales encouraged bulls further with GBP printing new year-to-date highs of 1.5930 against USD encouraging a positive trading outlook.
  • JPY The main focus of last week was the BOJ’s Monetary Policy Statement. Following Kuroda’s comments recently that further JPY weakness was unlikely and the consequent fall in USDJPY, traders were waiting for clarification on these comments. Disappointingly, Kuroda explained that he had never said “anything specific labour currency levels or the pace of moves” and finally the BOJ maintained it’s record stimulus. FOMC saw USDJPY unwind continue whilst GBP strengthened considerably against JPY this week.
  • AUD Having continued to contract within it’s recent range the Australian currency made a break for the upside following the dovish FOMC meeting however, this surge was short-lived and AUD found heavy selling as it tested the the .7850 area. Expectations around the RBA are increasingly dovish as Chinese growth continues to weaken and any further advancement higher is likely to present better selling levels.
  • CAD The FOMC inspired strength in the Canadian Dollar was reversed on Friday  as a big miss on Canadian retail sales submerged any positivity stemming from the CPI beat. Oil selling off on Friday added to this downside pressure with USD moving up from its weekly low to back into the middle of the previous week’s range.

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