FX majors outlook

UPCOMING EVENTS:

  • Monday: US market holiday.
  • Tuesday: Fed’s Mester and Barkin speak.
  • Wednesday: Fed Chair Powell testifies before Senate, Fed’s Evans, Harker and Barkin speak, UK and Canada inflation reports.
  • Thursday: EZ, UK and US flash PMIs, Japan CPI report.
  • Friday: Fed’s Daly speaks.

On Monday the week begins with a US market holiday and PBoC (People’s Bank of China) decision on LPR changes. Expectations are mixed and the actual decision shouldn’t change the current  market sentiment  of risk aversion given that the US is headed into a recession, which may be already confirmed by the next GDP Q2 report.

Over the weekend Fed’s Waller (Voter, Hawk) said that he would back another 75 bps rate hike at the next 26-27th July meeting and that the Fed is “all in” on fighting inflation. Fed’s Mester (Voter, Hawk) said that they will need “compelling evidence” of  inflation  easing. That should come in the form of two or three lower M/M inflation readings in my opinion before the Fed starts to look into a less aggressive path.

On Tuesday we have again Fed’s Mester (Voter, Hawk) that shouldn’t add anything new to her previous remarks and Fed’s Barkin (Non-Voter, Hawk) that shouldn’t be a market moving event given that Barkin is not a voter until 2024.

On Wednesday Fed Chair Powell testifies before Senate and he shouldn’t add anything new given that he already spoke the last week at the Fed’s meeting Press Conference. Nonetheless it’s always better to be aware of it. There will also be Fed’s Evans (Non-Voter, Dove), Fed’s Harker (Voter, Hawk) and again Fed’s Barkin (Non-Voter, Hawk). I labelled some of them as “Doves” to differentiate from the Hawks, but we are at a point where there are only hawkish and less hawkish members.

Canadian CPI report will most likely be a barometer for next BoC (Bank of Canada) July 13th meeting. A hot print should confirm a more aggressive 75 bps hike after Governor Macklem suggested that they may need to make a larger than 50 bps hike. On the other hand, a soft reading should confirm a 50 bps hike as the BoC will need more than just one soft report before making some changes to their plans.

UK CPI report is expected to come at 9.1% Y/Y for the headline number and remain at 6.2% for the core reading. The BoE (Bank of England) last week forecasted inflation at 11% by year-end and then hiked by just 25 bps. Bold…

On Thursday we get Eurozone, UK and US flash PMIs which should further confirm a slowing economy and Japan CPI. The latter could be a mover for the JPY if we see a notable jump in inflation readings after the BoJ kept its monetary policy unchanged and remained on the dovish side. For now, the BoJ doesn’t feel the pressure like its peers, but the market keeps on expecting them to fold at some point and follow the other central banks into a tighter policy.

On Friday we conclude the week with Fed’s Daly (Non-Voter, Dove) and it shouldn’t be a market moving event unless she go extremely aggressive on the monetary policy front.

This article was written by Giuseppe Dellamotta.