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Weekly Market Outlook: The Greenback awaits Employment Data

After the Fed policy meeting and Powell’s speech, all eyes turn to the US employment report this week. Market participants expect that the upcoming data will probably show a gradual job recovery. Other important data to watch; US foreign trade balance and Eurozone inflation. In addition to worldwide manufacturing PMI surveys and an OPEC+ meeting that is expected to offer guidance into the coalition’s production plans.

USD: Will the Employment Data Save the Dollar? 

Now after the federal reserve and its chair, Jerome Powell, emphasized the importance of seeing a resilient recovery in the job market before tightening monetary policy, the upcoming data will be watched very closely. Any surprises would have a significant impact on dollar movements. 

The US economy is expected to add 700k jobs in June, following 559k jobs added in May as broader business reopening continues to boost economic activity and demand for labor. The unemployment rate is expected to continue falling from 5.8% to 5.7%. The US job market is 7.5 million jobs away from its pre-crisis levels. 

Meanwhile, the ISM Manufacturing PMI is expected to show a faster expansion in factory activity, not far from March’s 37-year high and despite the ongoing supply constraints. However, the overall sector’s performance may see a weaker growth at 61.0 points, compared to 61.2 points in May. 

Eurozone Inflation to drive the Euro

Inflation figures for the eurozone are scheduled to be released on Wednesday with anticipated easing from a two-and-a-half-year high and returning to the ECB’s target of just below 2%. Flash CPI estimate is expected to show that price pressures receded to 1.9% in June, from 2% back in May.  Core CPI flash estimate is seen to go slightly down from 1% to 0.9% annually. 

Ironically, forecasts indicate a minor slowdown in annual inflation despite the recent rise in oil prices and the economic reopening boom.  Any upside surprises won’t get ECB excited enough to give up its loose policy anytime soon.

European Central Bank President Christine Lagarde stated last week that the outlook for the economy is indeed brightening as the pandemic situation improves. However, underlying price pressures are likely to remain subdued despite an expected increase somewhat this year owing to temporary supply constraints and the recovery in domestic demand.

Loonie higher ahead of OPEC Meeting and GDP data

The Canadian dollar is having a couple of important events this week. The national economy is expected to shrink 0.8% on a monthly basis in April, after expanding by 1.1% in March. On the other hand, Manufacturing PMI is anticipated to experience a faster growth with a monthly reading of 57.4 points in June. Trade balance to show the surplus higher from 0.6 to 0.8 billion.

However, the big event for the Canadian dollar will be the OPEC+ meeting on Thursday that will drive the oil prices. It is expected that the meeting will signal further production increases by nearly 500k barrels per day starting from August. The recent rally in oil prices seems to give the producers confidence that the market can absorb some supply increases. 

Since the loonie is oil-sensitive, a major increase in oil supply will put significant pressure on prices, pushing the Canadian dollar to fall after the recent gains. However, holding on to current product levels or increasing by the anticipated amount, will unlikely to affect the loonie for now.


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