Week ahead highlights include: FOMC, US GDP, PCE; ECB, BoJ; flash PMIs 0 (0)

  • 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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What technical levels are driving the major currency pairs going into the new trading week 0 (0)

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.

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Forexlive Americas FX news wrap: Canadian dollar slides as rate hikes hit consumers 0 (0)

Markets:

  • Gold down $8 to $1961
  • WTI crude oil up $1.27 to $76.92
  • US 10-year yields down 1.7 bps to 3.83%
  • S&P 500 down 2 points to 4564
  • CHF leads, JPY lags

The economic calendar was light and there was little in the way of unscheduled news to jar the market. Heavy options expiries in stocks and the Nasdaq rebalancing drew some interest but price action was ultimately subdued, though not entirely quiet.

The big mover on the day was what looks like a BOJ leak to Reuters that the BOJ isn’t planning to change up yield curve control next week. That kicked off big yen sales across the board and a rise in USD/JPY to 141.95 before sales at the figure capped an almost-200 pip rally. There was some consolidation early in US trade down to 141.26 but the pair rose 50 pips from there in a second round of strength.

The US dollar was generally strong and particularly so early in the day as the euro and pound hit session lows at 1.1109 and 1.2817, respectively. It’s been a quick reversal in cable in a sixth-straight decline after touching a one-year high last week. The softer UK CPI data was undoubtedly the main economic data point of the week.

For Canada though, it was today’s softer retail sales report. It hints that BOC hikes are beginning to bite and the advance reading for June was flat again. The loonie slumped on the results despite a strong day for oil (which touched above the 200dma). USD/CAD rose 50 pips on the results to 1.3226 at the high and only backing off slightly.

NZD/USD was hit particularly hard this week, despite a high inflation reading. The market isn’t impressed with what China has offered in terms of stimulus so far and it’s been six straight days of good-size selling in the kiwi, taking it down to 0.6166 and only slightly outperforming the battered yen on Friday.

The week ahead is a big one, with rate decisions from the Fed, ECB and BOJ along with a busy week of earnings. Have a great weekend.

This article was written by Adam Button at www.forexlive.com.

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Dow industrial average keeps its up string alive with a slim gain 0 (0)

The Dow industrial average kept its winning streak alive with a slim gain of 0.01% today. The S&P index also rose modestly. The NASDAQ index fell for the 2nd consecutive day and is closing lower on the week.

The final numbers are showing:

  • Dow industrial average up 2.5 points or 0.01% at 35227.70
  • S&P index up 1.48 points or 0.03% at 4536.34
  • NASDAQ index fell -30.51 points or -0.2% at 14032.80

This week:

  • The Dow industrial average is now risen for 10 consecutive trading days
  • The Dow streak is the longest since August/September 2017
  • On Thursday the NASDAQ index had its worst day since March
  • Healthcare, energy and financials were the biggest gainers this week
  • Dow is up for the 2nd consecutive week

The final numbers for the week are showing:

  • Dow industrial average +2.08%
  • S&P index rose 0.69%
  • NASDAQ index fell -0.57%

For the month of July with 6 more trading days left:

  • Dow industrial average is up 2.38%
  • S&P index is up 1.93%
  • NASDAQ index is up 1.78%

Big week next week for earnings. You can find the list of major releases by clicking HERE.

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

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EURGBP trades the technicals this week, that is good new for the next week’s trading 0 (0)

The EURGBP is major cross-currency pair that rose sharply this week. With the ECB meeting ahead next week, understanding the technical levels in play could open the door for trading opportunities.

Technically as well, the market traders have used the technicals on the extremes to define support and resistance, and the correction off the high this week, has seen a swing level/area do a good job of holding support.

Looking at the 4-hour chart below, the pair on Monday and Tuesday based at the 100/200 MA. The basing at the level, gave the buyers the go ahead to push higher. On Wednesday and Thursday, the price raced higher but found resistance sellers against the 100 day MA at 0.8701. The highs got within a couple pips of those highs this week.

The subsequent move lower saw the pair move down below the 38.2% retracement at 0.86455, but held support near a swing area near 0.86357. That level./area between 0.86357 and 0.8655 will be a key barometer in the new trading week. Stay above is more bullish. Move below would increase the bearish bias once again.

For more details, watch the video above.

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

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WTI crude climbs above the 200-day moving average for the first time since August 2022 0 (0)

WTI crude oil has been flirting with the 200-day moving average all week and finally had a look above it, rising to $77.29. However it wasn’t able to break the weekly high of $77.32 and has backtracked slightly to $77.06.

In all, I wouldn’t be comfortable calling that a technical break but it sets up next week to be an interesting moment in the crude oil market. We should hear soon about Saudi plans on whether to extend voluntary cuts through September so that could be the headline that does it. If not, the market will be looking carefully at US inventory data in the hope that summer inventory draws will pick up.

This article was written by Adam Button at www.forexlive.com.

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An update on the most-important chart in the economic world 0 (0)

I have showed this chart before because it shows how the CPI chart laps some very easy comps soon.

What has emerged, pointed out by Omair Sharif, is that the numbers used on the chart are non-seasonally adjusted, which isn’t what is commonly (universally, frankly) used for the m/m CPI numbers.

What it showed was that even if CPI ran at 0.2% m/m until January, the year-over-year reading would rise to 3.9%.

This is problematic for two reasons:

1) If you use the standard seasonally-adjusted numbers, a 0.2% m/m reading would get CPI back to 2.5% in January.

2) If you insist on using non-seasonally-adjusted numbers, there’s a strong downward bias late in the year (because price hikes are usually done at the turn of the year).

Here is what the chart (by Preston Caldwell) shows if re-done for the standard seasonally-ajdusted numbers.

By that measure, a 0.2% m/m reading would be fine for getting CPI on track, especially considering that in March of 2024, the y/y comps begin to get easier.

The takeaway here is that we’re closer to 2% than it seems and it’s what the market is implying. That could change if the combo of housing, commodity prices and wages pickup but a 0.2% SA m/m reading is a fine baseline with what we know about the economy.

This article was written by Adam Button at www.forexlive.com.

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NZDUSD Technical Analysis – Make it or Break it moment for the Buyers 0 (0)

The last week, the miss in
the US CPI report has led to a big US Dollar selling
across the board as the market expected the Fed to be finished with rate hikes
after the July meeting. The USD started to come back to life though as strong
economic data suggested that the Fed may not be finished yet and may stay at a
higher level for longer than the market expects. In fact, the US retail sales
beat expectations on the Control Group, which is seen as a better gauge of
consumer spending, and yesterday the US initial claims were much better than expected
returning near the record low levels.

The RBNZ, on the other hand, kept its official cash
rate unchanged while stating that it will remain at the restrictive level for
the foreseeable future to ensure that inflation comes down back to target. The
recent New Zealand inflation data though surprised to the upside
which might put some pressure on the central bank and the next rate decision.

NZDUSD Technical Analysis –
Daily Timeframe

On the daily chart, we can see that NZDUSD sold off
pretty heavily from the key 0.6389 resistance and
erased all the USD weakness following the miss in the US CPI report. The price
is now testing the red 21 moving average and the
61.8% Fibonacci retracement level where we should find some buyers stepping in
to target another rally into the key resistance level.

NZDUSD Technical Analysis –
4 hour Timeframe

On the 4 hour chart, we can see that we have a very
good support zone between the 0.62 handle and the 61.8% Fibonacci retracement level.
This is where the buyers should step in with a defined risk below the Fibonacci
level and target an extension to the 0.6389 resistance. The sellers, on the other
hand, will want to see the price breaking below the Fibonacci support to pile
in even more aggressively and extend the fall into the 0.5987 support.

NZDUSD Technical Analysis –
1 hour Timeframe

On the 1 hour chart, we can see that the
price is now testing the Fibonacci retracement level where we should see the
buyers stepping in. Before reaching the key resistance, the buyers will need to
break above the strong 0.63 handle, where we should find the sellers piling in
to target a fall into the support level again and ultimately a break below it. If
the price falls below this support zone without a pullback, we should see the
sellers piling in even more aggressively and extend the fall into the 0.5987
support.

This article was written by FL Contributors at www.forexlive.com.

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Major central bank decisions return to the spotlight next week 0 (0)

Taking that into consideration, it might explain the more cagey mood among major currencies at the moment – barring the Japanese yen of course. The dollar was beaten down heavily last week but is putting its foot down this week, aided by a strong recovery in USD/JPY especially. It looks like we’ll have to wait until the key central bank decisions next week to settle the score next.

Here is the weekly outlook alongside some big data to watch out for:

Monday, 24 July

  • France July flash PMI data
  • Germany July flash PMI data
  • Eurozone July flash PMI data
  • US July flash PMI data

Wednesday, 26 July

  • Australia Q2 CPI figures
  • FOMC meeting policy decision
  • Fed chair Powell press conference

Thursday, 27 July

  • ECB monetary policy decision
  • ECB president Lagarde press conference
  • US Q2 advanced GDP figures
  • US weekly jobless claims

Friday, 28 July

  • BOJ monetary policy decision
  • France Q2 preliminary GDP figures
  • France July preliminary CPI figures
  • Germany July preliminary CPI figures
  • US June PCE price data

This article was written by Justin Low at www.forexlive.com.

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Japan top currency diplomat Kanda says watching FX market with sense of urgency 0 (0)

Well, there were certainly no complaints when the yen was strengthening up until the end of last week. But now as yen bulls are throwing in the towel amid the latest round of disappointment from the BOJ, we are starting to see the verbal jawboning return.

This article was written by Justin Low at www.forexlive.com.

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