Forex Major Currencies Outlook (July 26 – July 30)

USD 

Housing starts for June came in at 1643k vs 1590k as expected, easily beating expectations but building permits came in at 1598k vs 1700k as expected. With building permits falling for the third straight month, indicating lower supply going forward, housing prices will be able to continue their rise. Existing home prices in June came in at 5.86m, up from 5.78m the previous month. Another input indicating strong demand for houses, on the back of low mortgage rates and the fact that more people work from home, will also contribute to rising housing prices. 

This week we will have preliminary Q2 GDP reading, Fed’s preferred PCE inflation data as well as FOMC meeting. FOMC meeting is expected to be a non-event as investors are waiting for the Jackson Hole conference in August. 

Important news for USD: 

Wednesday:

• Fed Interest Rate Decision

Thursday:

• GDP

Friday:

• PCE 

EUR 

ECB has made no changes to their rates, APP and PEPP programs as was widely expected. They statement shows: “the Governing Council expects the key ECB interest rates to remain at their present or lower levels until it sees inflation reaching two per cent well ahead of the end of its projection horizon and durably for the rest of the projection horizon, and it judges that realized progress in underlying inflation is sufficiently advanced to be consistent with inflation stabilizing at two per cent over the medium term. This may also imply a transitory period in which inflation is moderately above target.” Basically, the rates will stay low for a long time. They indicate that they see inflation as transitory, are willing to accept inflation overshooting 2% for some time, that economic conditions are still too frail and that continuation of monetary stimulus is appropriate. Overall, a dovish message from the ECB. 

ECB president Lagarde stated that risks for growth remain broadly balanced. Manufacturing is expected to stay strong. Delta variant posts big uncertainties and will have negative impact on growth, especially in the services sector. Recovery would go faster if people would spend more of the funds saved during the pandemic. Current rises in price have been due to rises in energy prices, base effects and reintroduction of German VAT. 

Preliminary PMI data for July showed manufacturing PMI come in at 62.6 vs 62.5 as expected. Services rose to 60.4 vs 59.5 as expected and improved from 58.3 in June while composite came in at 60.6 vs 60 as expected. Composite reading is at the highest level since 2000. Supply chain disruptions have caused a small drop in the manufacturing reading (was 63.4 in June). Services sector is booming due to the loosening of restrictions with German services posting highest reading on record and pulling composite also to the new highs. French readings have been weaker than expected across all measures but were more than compensated by strong German readings. The report shows caution due to the Delta variant of the virus, however the economy started Q3 on a very strong note and that strength should continue throughout entire Q3. 

This week we will have preliminary Q2 GDP reading as well as preliminary inflation data for the month of July. 

Important news for EUR: 

Friday:

• GDP
• CPI 

GBP 

UK health minister Sajid Javid tested positive on covid, new Delta variant of it. UK faces almost 50 000 cases per day and there are calls for hundreds of thousands to self-isolate. July 19, the so-called “Freedom Day”, went with little celebration as new virus variant causes people to remain cautious. The US has advised its citizens to avoid travelling to the UK because of the concerns regarding virus developments. Retail sales in June came in at 0.5% m/m vs 0.4% m/m. A return to positive readings after last month’s drop with ONS noting that rise in retail sales could be attributed to EURO 2020 where England went all the way to the finals before losing to Italy in the penalty shootout. Preliminary PMI data for July missed expectations by a wide margin with all three readings dropping from their June levels. Manufacturing managed to stay above the 60-level coming in at 60.4 while services dropped to 58.7 from 62.4 in June pulling with them composite reading to 57.7 from 62.2 the previous month. New orders and business activity experienced drops which causes concerns about the Q3 GDP, it will most likely slow down. Ultimately, we must not forget that numbers close to the 60 level represent a very healthy and expanding economy. 

AUD 

RBA Minutes from the July meeting saw reiteration of the message that no rate hike is expected before 2024. Rate will not be raised until actual inflation is sustainably within the 2-3% target range. Need for accommodative monetary policy remains. Recovery in the labour market is continuing faster than expected. However, since the July meeting, Sydney has re-entered another lockdown which will require additional policy adjustments, primarily around the QE taper, to be made at the August meeting. Some projections see the new lockdown having a cost of AUD10bn for the economy with potential for additional cities to go into lockdown mode. Preliminary Markit PMI for July start to show devastating impact of new lockdowns with services PMI plunging to 44.2 from 56.8 in June. Markit notes that firms have continued hiring despite the depressive readings which indicates that labour market is strong and that PMI could pick up quickly once the restrictions are lifted. 

This week we will have Q2 inflation data from Australia as well as official July PMI data from China. 

Important news for AUD: 

Wednesday:

• CPI

Saturday:

• Manufacturing PMI (China)
• Non-Manufacturing PMI (China)
• Composite PMI (China) 

NZD 

GDT auction results showed a price drop of -2.9%. This is the seventh consecutive auction where prices have dropped and it is the eighth time prices drop in nine auctions. NZDUSD was pushed down by more than 100 pips during the week on the back of risk off sentiment in the markets caused by uncertainties regarding global recovery and reflation trade now that new Delta variant of the virus is ravaging countries. 

CAD 

There was a deal made over the weekend that will lead to output increase by 400k barrels per day each month starting from August until full capacity of 5.8 million barrels per day is restored. With the pace of 400k barrels per day each month full capacity should be reached in September-October period of 2022. OPEC+ countries will deliver a further 2 million barrels per day each month. Now that the supply side is less of the unknown and concerns about the Delta variant are rising risk off sentiment prevails in the markets leading to lower oil prices and consequently lower CAD. Headline retail sales in May came in at -2.1% m/m while ex autos category came in at -2% m/m. Both readings surpassed expectations and preliminary June reading shows a whopping 4.4% m/m increase vs -3.2% m/m as expected. 

This week we will have inflation data. 

Important news for CAD: 

Wednesday:

• CPI 

JPY 

National inflation data for June saw both headline and ex-fresh food reading rising to 0.2% y/y. This was the highest reading for the ex-fresh food inflation in 15 months. Rising energy prices have contributed to the rise in the reading. Still, oil prices are dropping so we can expect reversal of the reading already in July and there is a fact that BOJ targets inflation at 2% and Japan is nowhere near that level. Trade balance surplus in June rose to JPY383.2bn from deficit of JPY189.4bn in May on the back of surging exports. Exports came in at 48.6% y/y with exports of machinery jumping 42%, while transport equipment exports surged 68.1%, boosted by motor vehicles (102.8%), and cars (100.6%). Exports to most countries rose with most significant rises seen in exports to China (27.7%) and exports to US (85.5%). Imports rose 32.7% y/y, for a third consecutive month of rising imports indicating that domestic demand is holding on. 

CHF 

SNB total sight deposits for the week ending July 16 came in at CHF711.9bn vs CHF711.7bn the previous week. With EURCHF hovering around the 1.085 level SNB does not see it fit to intervene in the FX market. Trade balance in June improved to CHF5.53bn, however the larger surplus was achieved on the back of both falling exports and falling imports.

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_{Please note that this analysis should not be used as investing advice as it is only an overview of the economic events influencing the markets. Please remember that our accounts have Market Execution. Please note how Execution works during high impact news and other times of low liquidity.}