Weekly Outlook, July 8-12: Top 5 Things to Trade This Week
Arslan Butt • 3 min read
Happy Weekend, everyone.
During the previous week, the dollar market finished on a positive note. The index surged against a basket of currencies to its highest levels in two and a half weeks on Friday after figures revealed that US job growth grew strong in June. The US Non-farm payrolls progressed by 224K jobs last month, which is the highest figure in five months. However, the unemployment data came out at 3.7% missing the forecast of 3.6%.
Typically, the NFP places short term impact on the dollar, while the Unemployment rate leaves a longer-term impact. So, the dollar is likely to trade bearish on Monday and onward until we have a positive economic data release from the US.
Looking ahead into the economic calendar, the focus is going to be on Fed Chair Powell’s speech, monetary policy decision from the Bank of Canada, and US CPI figures.
1) USD – Fed Chair Powell Speaks – Tuesday, 12:45 GMT
The Federal Reserve Chair Jerome Powell is due to deliver opening remarks at an event hosted by the Federal Reserve Bank of Boston. As head of the central bank, which controls short term interest rates, he has more influence over the nation’s currency value than any other person. Traders scrutinize his public engagements as they are often used to drop subtle clues regarding future monetary policy. Audience questions expected.
2) CAD – BOC Monetary Policy – Wednesday, 14:00 GMT
The BOC has been one of the few central banks amongst liberal economies (apart from US Federal Reserve) that’s been able to raise interest rates despite the crises and trade war. The Bank of Canada has increased rates four times since 2017, but considering the slow global economic growth, the US China trade war, and weaker crude oil prices, the BOC is likely to keep the interest rates as it is.
Traders, the initial trend can be bullish for the Loonie however the trend can be short-lived. So I will be looking to buy CAD on news and will come out of the trade as soon as possible.
What happens if BOC cuts the interest rate?
In that case, we may see a dramatic buying in USD/CAD for at least 100 -200 pips in the first five minute of the news release.
3) USD – FOMC Meeting Minutes – Wednesday, 18:00 GMT
During the FOMC and Fed policy decision, the Federal Reserve said it does not expect any rate cuts this year, but did forecast one for 2020. The central bank’s median mark for the federal funds rate is still 2.4% for 2019, unchanged from its March projection.
However, eight members of the Federal Open Market Committee intimated they were in support of one rate cut this year. The Fed, however, ticked down its forecasts for upcoming years.
At 18:00 GMT, the meeting minutes from the event will shed light on some major topics, such as how FOMC members interpret the trade war and the consequences of a trade war on the US economy. Should the Fed change its monetary policy? Well, it’s just my opinion about the current FOMC meeting minutes and I’m also expecting a neutral response of investors on its release.
4) GBP – BOE Financial Stability Report – Thursday, 9:30 GMT
The BOE Governor Mark Carney is due to hold a press conference about the financial stability Report in London.
What’s the Financial Stability Report?
It’s an evaluation of health in the financial system and potential risks to financial stability. The evidence on anxieties and shortcomings can provide insight into the future of monetary policy. As we know, the UK is struggling with inflation, which is why they haven’t hiked the interest rate. Therefore, investors will be monitoring it closely for further clues on the rate hike.
5) GBP – CPI m/m
The inflation figures are highly correlated with labor market figures as it’s all about consumption and people usually consumes more when they have a job or their business is booming. Looking at the US labor market report for June 2019, the figures were mixed. The US Non-farm payrolls progressed by 224K jobs last month which is the highest figure in five months. However, the unemployment data came out at 3.7% missing the forecast of 3.6%. The average hourly earnings fell from 0.3% to 0.2% in June.
Here’s the thing – a drop in average hourly earnings could diminish people spending pattern and can cause a drop in demand, ultimately lowering the inflation rate.
Economists are expecting a slight drop in the US inflation figures 0.1% to 0.0%. The core inflation is expected to rise from 0.1% to 0.2%. Let’s wait for the actual figures.
Good luck and stay tuned to FX Leaders for further updates!