UPCOMING EVENTS:

Monday:
EZ-UK-US PMIs.

Tuesday:
US Consumer Confidence.

Wednesday:
Australia CPI, FOMC Policy Decision.

Thursday:
ECB Policy Decision, US Jobless Claims, US Q2 GDP.

Friday:
BoJ Policy Decision, US PCE, US ECI.

Monday:
The Eurozone Manufacturing PMI is expected to tick lower to 43.3 vs. 43.4
prior, while the Services PMI is seen at 51.4 vs. 52.0 prior. Eurozone
economic data started to consistently surprise to the downside lately which
signals a possible recession hitting the economy in H2 2023 and the ECB ending
its rate hike cycle.

The UK Manufacturing PMI is expected at
45.9 vs. 46.5 prior, while the Services PMI is seen at 53.0 vs. 53.7 prior. This
pattern of contractionary Manufacturing Sector and expansionary Services Sector
has been the theme of this tightening cycle and what is probably delaying the
recession as the Services Sector is less sensitive to rate hikes.

The US Manufacturing PMI is expected a
touch higher at 46.4 vs. 46.3 prior, while the Services PMI is seen a touch
lower at 54.0 vs. 54.4 prior. A downside surprise should weigh on the USD as
the lower US inflation readings are still fresh in the market’s mind and may
cause another dovish repricing in interest rates expectations. On the flip
side, an upside surprise should give the USD some support as the market may start
to price in another rate hike.

Tuesday:
The US Consumer Confidence is expected at 113.0 vs. 109.7 prior. The last
month, we saw a huge upside surprise in
the report jumping from 104.0 to 109.7. The US Consumer may feel more upbeat
due to a strong labour market, lower inflation (energy deflation increased
disposable income) and higher stock market. In fact, the present situation
index in the Consumer Confidence report is seen as a leading
indicator for the labour market and it jumped
from 146.8 to 155.3 the last month. The higher stock market prices, on the
other hand, have a positive wealth
effect that keeps the labour market strong
and consumer spending healthy.

Wednesday:
The Australia CPI Y/Y is expected at 5.4% vs. 5.6% prior, while the CPI Q/Q is
seen at 1.0% vs. 1.4% prior. The RBA’s preferred measures of inflation, the
Trimmed Mean and the Weighted Mean, are seen all lower. The Trimmed Mean
Y/Y is expected at 5.9% vs. 6.6% prior, while the Q/Q figure is seen at 1.0%
vs. 1.2% prior. The Weighted Mean Y/Y is expected at 5.4% vs. 5.8% prior, while
the Q/Q reading is seen at 1.0% vs. 1.2% prior. The Australian
Jobs report last week beat
expectations across the board, and it tipped the expectations in favour for
another rate hike, but a miss in the inflation report may give the RBA an
excuse to keep the cash rate steady. As a reminder, the RBA’s inflation
target is 2-3% per annum.

The Fed is expected to hike by 25 bps and
bring the FFR to 5.25-5.50%. The market has already baked in this rate hike,
so it won’t be a surprise at all. In fact, the market will focus more on
hints for the next move as at the moment the Fed is seen as done with this July
increase. In my opinion, it’s unlikely that the Fed will pre-commit to anything
at this meeting as they remain data dependent and the recent lower Core
inflation reading should increase their hopes for a soft landing. They will
also see two more NFP and CPI reports before the September meeting, so I
think this meeting is likely to be the most boring one of the year.

Thursday:
The ECB is expected to hike by 25 bps and bring the deposit rate to 3.75%. This
rate hike was pencilled in already at the last
ECB rate decision as President Lagarde
said that “inflation is projected to remain too high for too long” and that
there was still “more ground to cover”. In fact, all the ECB speakers have been
repeating week after week that they will hike at the July meeting and that the
stronger debate will centre on the September decision, which will be much
more data dependent. In fact, we are unlikely to see any pre-commitment at
this meeting as the ECB is likely to just stress their data dependency and
resoluteness to bring inflation back to target.

The US Jobless Claims report keeps on
being one of the most market-moving events as the labour market continues to be
at the top of the market’s focus. Last
week, we saw another big beat in Initial
Claims that sent the US Dollar higher across the board, while Continuing Claims
ticked higher, although they lagged by one week the Initial Claims. As a
reminder, the last week Initial Claims data coincided with the NFP survey week.
This week Initial Claims are expected at 233K vs. 228K prior, and the
Continuing Claims are seen at 1742K vs. 1754K prior.

Friday:
The BoJ is expected to keep its monetary policy unchanged with rates at -0.10%
and YCC to flexibly target 10yr yields within -/+ 0.50% target band. The BoJ
will also release its Outlook Report where the central bank is expected to revise
higher its inflation forecasts. There were some expectations coming into this
meeting that the BoJ could tweak its YCC policy, but those were trumped first
by dovish Governor Ueda’s comments and eventually by a Reuters
report last Friday saying that the BoJ was
leaning towards keeping yield control policy at the upcoming meeting.

The US Core PCE M/M is expected at 0.2%
vs. 0.3% prior while there’s no expectation for the Y/Y figure at the moment,
although the Cleveland Fed Inflation Nowcast points to a 4.2% reading vs. 4.6%
prior. The market is likely to focus more on the US Employment Cost Index (ECI)
though which is expected at 1.1% vs. 1.2% prior.

This article was written by Giuseppe Dellamotta at www.forexlive.com.

• Sun: Spanish
  Elections.
• Mon: EZ/UK/US
  Flash PMIs (Jul).
• Tue: German Ifo
  Survey (Jul), NBH Announcement, Richmond Fed (Jul).
• Wed: FOMC
  Announcement, Australian CPI (Jun).
• Thu: ECB
  Announcement, US GDP Advance/PCE (Q2).
• Fri: BoJ
  Announcement & Outlook Report, French Flash CPI (Jun), Spanish Flash CPI
  (Jun), EZ Business Confidence Survey (Jul), US PCE (Jun).

NOTE: Previews are listed in day order

Spain Elections (Sun):

Spain goes to the polls on July 23rd with all
350 Congress of Deputies seats and 208/265 Senate seats up for grabs. Elections
were called early after incumbent PM Sanchez’s PSOE party suffered heavy losses
in the May local elections. Currently, polls have People’s Party (PP) on around
35% or 135 seats and the incumbent Socialist Workers’ Party (PSOE) on 29% or
106 seats. Given that no party is on course for an outright majority, a number
of options present themselves. Feijoo’s PP looks like it will be closest to the
176 majority hurdle, and thus may decide to attempt to proceed with a minority
government; though, this would only be viable if PP was close to the 176 mark.
Alternatively, a minority government propped up by some of the smaller parties
or a coalition with right-wing Vox are the next viable options; though Feijoo
has pushed back on the latter. On the flip side, Incumbent PM Sanchez’s PSOE
and Sumar could end up working together to prevent a rightwing coalition from
entering power, however as things stand this would necessitate the support of
numerous smaller parties either as a formal coalition or via external backing.
Crucially for markets, the election occurs during the typical fiscal planning
period for the next FY. Therefore, the market reaction may well be more evident
in the weeks/months post-election and be dependent on how the planning process
goes and its eventual results with particular interest around the deficit.

Eurozone PMI (Mon):

Expectations are for the manufacturing PMI in
July to tick marginally lower to 43.3 from 43.4, services to slip to 51.4 from
52.0, and pushing the composite down to 49.6 vs. prev. 49.9. The prior report
saw a drop off for both the manufacturing and services components with the
release noting “the eurozone economy ground to a halt at the end of the second
quarter, ending a robust sequence of services-led growth seen since the
beginning of the year”. This time around, analysts at Oxford Economics note
“based on the declines recorded in earlier sentiment data released this month
such as the Sentix and the ZEW indices, we expect the eurozone composite PMI to
fall further below the 50-point threshold that separates expansion from
contraction”. The consultancy adds that “taken at face value, this suggests
there’s a considerable risk that eurozone GDP will contract in Q3 2023”. From a
policy perspective, the release will likely have little impact on Thursday’s
ECB rate decision (see below for details) which is nailed on to deliver a 25bps
hike to the deposit rate.

UK PMI (Mon):

Expectations are for the services PMI in July
to slip to 53.0 from 53.7, with the manufacturing component expected to fall to
45.9 from 46.5 and composite metric seen at 52.2 vs. prev. 52.8. The prior
report saw declines in both the manufacturing and services components with the
release noting “the service sector showed renewed signs of fragility in June as
rising interest rates and concerns about the UK economic outlook took their
toll on customer demand”. This time around, analysts at Investec suggest that
the increasingly hawkish interest rate bets seen at the start of the month
could have “reduced corporate confidence in the economic outlook over the next
twelve-months”. The desk notes that despite downticks for all three metrics, it
expects the services component to remain in expansionary territory and
“continued to be supported by the relatively low level of unemployment in the
economy and the still sizeable pool of excess savings that households (in the
aggregate) have accumulated over the course of the pandemic”. From a policy
perspective, following the recent sub-forecast inflation print, odds now lay in
favour of a 25bps hike (70%) vs. a 50bps adjustment (30%); a
stronger-than-expected outturn could swing things back towards a more 50/50 outcome
on the basis that the UK economy is proving more resilient than expected in the
face of rising rates.

FOMC Policy Announcement (Wed):

The Fed is expected to lift rates by 25bps to
5.25-5.50% at its July confab, with traders looking for clues as to whether
this is the central bank’s last rate rise of the cycle, or whether it is likely
to fire an additional hike at a future meeting, in line with its own
projections. SGH Macro’s Fedwatcher Tim Duy explains that “market participants
are caught in the grips of a Goldilocks narrative as recession fears are once
again pushed into the future while inflation suddenly looks vanquished.” Ahead,
Duy says that if growth firms in Q3, as incoming data suggest, then another
hike will remain on the table, adding that even a temporary period of inflation
could sideline the Fed, especially if growth slows to something clearly below
potential, which he says is around 1.8%. “The Fed will, however, lean towards
pulling off that second rate hike – we should not dismiss that possibility too
easily,” Duy writes, “we can easily envision that second hike if growth remains
firm, but what we can’t see yet is the data to support an increase in the SEP
projected terminal rate in September, although a rebound of inflation could
also easily make that happen.”

Australia CPI (Wed):

Australia will release its latest inflation
data next week, including various CPI metrics for Q2 and the monthly CPI for
June which officials will be hoping to see a further slowdown in price growth.
As a reminder, the previous reading for Q1 was mixed as headline inflation
topped forecasts with CPI QQ at 1.4% vs. Exp. 1.3% and CPI YY at 7.0% vs. Exp.
6.9%, but the headline annual pace slowed from its highest reading since 1990
of 7.8% in the December quarter, while the RBA’s preferred Trimmed Mean CPI QQ
and YY, as well as the Weighted Median CPI QQ and YY figures were all softer
than expected. The Y/Y pace of inflation during Q1 was spearheaded by a 9.8%
climb in the cost of Housing, an 8.6% increase in Recreation and culture, as
well as an 8.0% rise in prices for Food and non-alcoholic beverages, while in
terms of the monthly CPI, the prior reading for May was softer than forecast at
5.60% vs. Exp. 6.10% (Prev. 6.80%). Nonetheless, this remains firmly above the
RBA’s 2-3% target band which will likely keep policymakers on their toes with
any pickup in pace to add to calls for the central bank to resume its hiking
cycle.

ECB Policy Announcement (Thu):

As judged by market pricing and surveyed
analysts, the ECB is once again expected to deliver a 25bps hike which would
take the deposit rate to 3.75%. The decision to move on rates again will be
based on the GC’s view that inflation “is projected to remain too high for too
long”, which prompted President Lagarde to declare at the June meeting that
there was still “more ground to cover” and the ECB is “not done” on rate hikes.
Since the prior meeting, headline inflation has cooled to 5.5% from 6.1%,
however, the super-core metric ticked higher to 5.5% from 5.3%. With this in
mind and officials from the Bank widely flagging a 25bps hike, the actual rate
decision itself will likely pass with little fanfare. Instead, focus for the
release will be on any accompanying guidance or hints about what tightening (if
any) will be delivered from September onwards. On which, reporting from
Bloomberg has suggested that the toughest challenge policymakers are set to
face will be how to keep the September meeting an open one by avoiding “strong
signals of either another hike or a pause”. As a guide, the policy statement
currently includes the line “interest rates will be brought to levels
sufficiently restrictive to achieve a timely return of inflation to the 2%
medium-term target and will be kept at those levels for as long as necessary”. Market
pricing for September puts the chance of another 25bps move at around 50/50 in
the wake of comments from hawkish GC member Knot (and partly as a result of
global rate pricing on the back of soft UK inflation data) who refrained from
putting a September hike on the table by suggesting that rate increases beyond
July are “possible” but “not a certainty”. President Lagarde’s best course of
action will likely be to stress the Bank’s data-dependence given that come
September the Bank will have seen the release of July and August inflation
reports and will be armed with their latest macro projections.

US GDP (Thu):

The first look at GDP in Q2 is expected to
show growth of 1.8% Q/Q annualised, cooling a little from the 2.0% rate seen in
Q1. Credit Suisse notes that consumer spending growth slowed in Q2 to around
1.1% vs Q1’s 4.2%, likely due to higher borrowing costs. Demand for durable
goods also fell slightly, despite inflation pressures easing. The bank also
expects net exports to have had a negative impact in Q2. On the other hand, the
upside case is supported by business investment likely having had a
contribution in the quarter. And while residential investment is expected to
have very little contribution, the rate of decline eased, though high mortgage rates
continue to be a hindrance.

BoJ Policy Announcement (Fri):

The Bank of Japan will conduct its latest
2-day policy meeting next week and will likely keep policy settings unchanged,
with rates to be kept at -0.1% and YCC maintained to flexibly target 10yr
yields at 0% within a +/- 50bps target band. The central bank will also release
its latest Outlook Report which contains Board members’ median forecasts for
Real GDP and Core CPI, while press reports have noted expectations that the BoJ
could raise the inflation forecast above the 2% target level at the upcoming
meeting, which if confirmed, could be seen to pave the way for further policy
normalisation. There was also some speculation about a potential tweak in
policy with former BoJ Director Hayakawa expecting an adjustment to yield curve
control this month by potentially raising the 10yr ceiling to 1.0%. Reuters
sources on Friday suggested the Central Bank is leaning towards maintaining its
yield control policy at the next meeting. Many policymakers see no immediate
need for action as the 10-year yield is trading stably within the 0.50% cap.
Despite this, there is consensus that the yield curve control needs to end at
some point, though the timing is not yet decided. Sources added that the BoJ is
expected to revise up core inflation forecasts for FY23, albeit FY24 & FY25
forecasts are expected to be largely in-line with current projections. Rhetoric
from the central bank continues to suggest a lack of urgency to tweak policy as
Governor Ueda recently stated there is still some distance to go before
sustainably achieving the 2% inflation target and the Bank has been patiently
maintaining easy policy, while he added that unless the assumption on the need
to sustainably achieve the 2% target changes, the narrative on monetary policy
will not change. Ueda previously stated that responding to an inflation
undershoot after a premature rate hike is more difficult than responding to an
overshoot and that they have not changed policy because Japan’s inflation is not
considered sustainable now. Other officials have also suggested a preference to
keep policy steady with Deputy Governor Himino stating that they must guide
policy flexibly and the best approach is to maintain ultra-easy monetary
policy, while Deputy Governor Uchida also said they will maintain YCC from a
perspective of sustaining easy monetary conditions and there’s still a long way
to go before deciding to hike rates. The recent data releases have been mixed
which favours a patient approach as Household Spending and Machinery Orders
have contracted, while the latest BoJ quarterly Tankan survey mostly topped
estimates and showed Japanese large manufacturers’ sentiment improving for the
first time in seven quarters. Furthermore, latest inflation data showed a
slight acceleration and remained above the 2% price target, but is not expected
to trigger a shift in policy given the central bank’s view that inflation will
slow in the middle of the current fiscal year.

US PCE (Fri):

The Fed’s preferred gauge of core PCE prices
is expected to have risen 0.2% M/M in June, easing a little from the 0.3%
increase seen in May. Hopes for cooling inflation have been supported by the
June CPI data which, while differing slightly in methodology, posted a muted
rise, adding to the argument that the downtrend in core inflation will
accelerate, according to Capital Economics. Its analysts note that used vehicle
prices posted a decent decline, as well as widespread falls in the prices of
other core goods. And there were also signs that gains in core services
ex-housing were slowing. “Although that was largely due to a plunge in
airfares, which mainly reflects lower jet fuel prices rather than labour market
conditions, it is nevertheless the sector Fed officials are watching most closely
as they look for evidence the slowdown in core inflation will continue,” they
write.

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This article was written by Newsquawk Analysis at www.forexlive.com.

The following videos will help get you ready for the new trading week. Be sure to like them and share them if you feel worthy. All support is appreciated. If you have any comments also add them to this post or to the videos.Have a safe and great weekend. EURUSD: On Friday, the EURUSD moved down to the 38.2% target in the US session at 1.1106, but found support buyers there. That will be a key level going into the new week as well. The ECB and the Fed will both increase rates this week which depending on the central bank chatter, will help drive the pair.

USDJPY: The BOJ meets this week as well and the tilt is to no change in policy but we will see if they tilt to more YCC. On Friday, the pair moved down to test the 50% midpoint of the last move down at 141.149 and bounced back higher. The 141.45 level is also a barometer level for buyers and sellers into the new week. 142.07 area is the next upside target. Buyers are more in control.

GBPUSD: The GBPUSD fell below a swing area on Friday below 1.2635 and 1.26486. The price moved up to 50% of the move up from the end of June at 1.28658 and stalled in the US session. The 50% will be a key barometer for buyers and sellers in the new trading week.

USDCHF: The USDCHF traded above the 200-hour MA on Thursday of last week which was the first since July 6. On Friday, the price dipped down to the declining MA level and found buyers against that MA level. That increases the MAs importance going forward. Having said that, the pair is still below the 2014 low at 0.8656 which will need to be broken along with other targets including the 38.2$% of the move down from the July 6 high at 0.87235 to give the buyers more control.

USDCAD: The USDCAD moved higher on Friday and in doing so extended above its 38.2% of the July move to the downside at 1.3204. That level down to 1.3200 will be close support into the new trading week for the USDCAD if the buyers are to continue its move higher.

AUDUSD: The AUDUSD fell below the 50% of its move up from the July 6 low at 0.67466. That midpoint is within a swing area between 06737 and 0.67546. Stay below it keeps the sellers in control but the 200 day MA at 0.6714 and the 100 day MA at 0.6686 loom to the downside as key levels to get below. The battle is on in the pair.

EURGBP: With the ECB in play this coming week, the EURGBP is a pair that may be of interest. The pair broke above an area that has confined the pair this week and in doing so extended to test its 100 day MA on two separate occasions. The sellers leaned twice and pushed the pair down. The low on Friday came down to test and break the 38.2% of the range since April high at 0.86455 but stalled near a lower swing level at 0.86357. Those lower extremes will be the floor that if the EURGBP is to stay move positive, will have to stay above in the new trading week.

Have a great and safe weekend to all. Thank you for your support.

This article was written by Greg Michalowski at www.forexlive.com.