EUR/USD jumps to 17-month high on monetary policy divergence

Weekly Market Outlook: Focus on BoE and RBA decisions, US jobs report! 

Weekly Market Outlook – This week, the Bank of England and the Reserve Bank of Australia will release their summer central bank decisions. However, the US jobs report might attract the most attention. The ISM PMIs will also be released in the United States, while Canada and New Zealand publish their employment data. In Europe, the focus will be on flash inflation and GDP data. A monthly meeting of the OPEC+ alliance will also spotlight oil. 

What to watch on the Economic Calendar this week: 

* - Important   

Monday, July 31:     

  • JPY: Prelim Industrial Production m/m 
  • JPY: Retail Sales y/y 
  • NZD: ANZ Business Confidence 
  • CNY: Manufacturing PMI* 
  • CNY: Non-Manufacturing PMI* 
  • CHF: Retail Sales y/y 
  • EUR: CPI Flash Estimate y/y* 
  • EUR: Core CPI Flash Estimate y/y 
  • EUR: Prelim Flash GDP q/q 
  • USD: Chicago PMI 

Tuesday, August 01:     

  • JPY: Unemployment Rate 
  • JPY: Final Manufacturing PMI 
  • CNY: Caixin Manufacturing PMI* 
  • AUD: Cash Rate 
  • AUD: RBA Rate Statement* 
  • GBP: Nationwide HPI m/m 
  • AUD: Commodity Prices y/y 
  • EUR: Final Manufacturing PMI 
  • GBP: Final Manufacturing PMI 
  • CAD: Manufacturing PMI 
  • USD: ISM Manufacturing PMI* 
  • USD: JOLTS Job Openings* 
  • USD: ISM Manufacturing Prices* 

Wednesday, August 02:     

  • NZD: Employment Change q/q* 
  • NZD: Unemployment Rate* 
  • JPY: Monetary Policy Meeting Minutes 
  • CHF: Manufacturing PMI 
  • USD: ADP Non-Farm Employment Change* 
  • USD: Crude Oil Inventories 

Thursday, August 03:  

  • AUD: Trade Balance* 
  • CNY: Caixin Services PMI* 
  • CHF: CPI m/m* 
  • EUR: Final Services PMI 
  • GBP: Final Services PMI 
  • ALL: OPEC-JMMC Meetings* 
  • GBP: BOE Monetary Policy Report* 
  • GBP: MPC Official Bank Rate Votes* 
  • GBP: Monetary Policy Summary* 
  • GBP: Official Bank Rate* 
  • USD: Unemployment Claims* 
  • USD: Prelim Nonfarm Productivity q/q 
  • USD: ISM Services PMI* 

Friday, August 04:  

  • AUD: RBA Monetary Policy Statement* 
  • EUR: Retail Sales m/m 
  • CAD: Employment Change* 
  • CAD: Unemployment Rate* 
  • USD: Average Hourly Earnings m/m* 
  • USD: Non-Farm Employment Change* 
  • USD: Unemployment Rate* 
  • CAD: Ivey PMI* 

Economic data highlights scheduled for July 31 week: 

  • The focus of the July 31 week is on the labor market, with Fed Chair Jerome Powell noting it remains “very tight” despite rate hikes. 
  • The unemployment rate in June 2023 was 3.6%, remaining near historic lows and indicating strong labor demand. 
  • Reports on job market data during the week may show whether the labor supply and demand are aligning. 
  • The JOLTS report on Tuesday might indicate if job openings are still plentiful but slightly reduced. 
  • The ADP employment report on Wednesday will provide insights into private payroll employment strengths or weaknesses. 
  • The Challenger report on Thursday may show businesses’ reluctance to lose experienced workers despite cutbacks in hiring. 
  • The key data of the week is the change in nonfarm payrolls in the July employment report on Friday, with an early consensus of around 200,000, but historically, July’s report tends to come in under expectations. 
  • Extreme weather and poor air quality in July may limit hiring for outdoor work, while events like concerts and increased travel might offer alternative employment opportunities for some workers. 
  • Forecasters expect slower payroll growth in July, so a softer report may not be a significant disappointment. 

Don’t miss out on the latest updates! Stay on top of upcoming events, announcements, and data releases with the Global Economic Calendar

USD: Will the US labor market cool off? 

The Fed’s decision has passed, but the upcoming jobs report holds more significance for the markets due to Powell’s open stance on the September meeting. The American job market has been losing momentum, though not rapidly enough to alleviate concerns about wage-price inflation. However, recent data suggests the Fed might finally be getting what it wants, as employment growth hit its slowest pace in two-and-a-half years in June, a trend likely continuing in July. 

USD Steady mid 101 ahead of CPI Data

In July, nonfarm payrolls are expected to rise by 184k, a decline from the previous 209k figure. The unemployment rate is anticipated to remain at 3.6%, and average earnings are projected to grow slightly over 4% year-on-year. 

Weekly jobless claims have been decreasing throughout July, raising the possibility of a positive NFP surprise. Nevertheless, the markets may not welcome a strong report as it would reinforce the case for a September rate hike. 

Investors will closely analyze the US labor market through the JOLTS job openings report on Tuesday and the ADP employment report on Wednesday. Additional data, such as the Chicago PMI on Monday and factory orders on Thursday, will also be considered. 

Besides the payroll figures, the most significant factors impacting the US dollar could be the ISM PMIs on Tuesday (manufacturing) and Thursday (non-manufacturing). The US manufacturing sector experienced a recession this year, in contrast to the expanding services economy. Interestingly, the non-manufacturing PMI unexpectedly rose in June. 

Given the Fed’s uncertainty regarding rate hikes, the incoming data could sway the odds in favor of the dollar if it proves stronger than expected. 

GBP: Bank of England to downshift again? 

The Bank of England is expected to raise the Bank Rate at its upcoming meeting on Thursday, but there is uncertainty regarding the magnitude of the increase. A 25-bps raise is widely anticipated, while the markets have assigned a roughly 30% chance of a larger 50-bps hike. However, recent economic developments have weakened the arguments for a consecutive double hike, given the decline in UK CPI below 8% and the easing of core CPI after the June inflation figures.  

The poor flash PMI estimates may see revisions upwards when the final readings are released, but the UK economy is facing challenges due to a slowdown in major trading partners and increased pressure on households from rising mortgage costs. Consequently, it is unlikely that the Bank of England will opt for a substantial rate increase, despite emphasizing the need for further tightening. 

In case the Bank of England doesn’t surprise with a more aggressive move, the focus may shift to the Bank’s latest inflation forecasts, particularly the projected speed at which CPI is expected to reach the 2% target. 

AUD: Will the RBA make another close call? 

The Reserve Bank of Australia is scheduled to convene on Tuesday to make its August policy decision, and there is a divergence of opinions among markets and economists regarding the likely outcome. Some analysts anticipate a 25-basis-point increase in the cash rate to 4.35% after a pause in July. However, the minutes from the previous meeting revealed a close call, with the Board planning to reevaluate the situation in August. 

The Bank will release updated economic projections on Friday, but it remains uncertain how much clarity they will offer. Economic data has been mixed lately, with the jobless rate dropping to 3.5% in June, but inflation unexpectedly cooled, showing a year-on-year CPI of 6.0% in Q2. 

Weekly Market Outlook - Australian Dollar

On the downside, both the manufacturing and services PMIs contracted in July, which has left the markets unconvinced that policymakers will implement a rate hike. Nevertheless, the markets foresee a final 25-basis-point increase over the next nine months. There is cause for optimism as Australian exporters stand to benefit from China’s efforts to stimulate its economy. 

If policymakers opt for a wait-and-see approach in the upcoming meeting, the decision may not significantly impact the Australian dollar, as a hawkish hold is considered the most dovish scenario. However, policymakers might still leave the door open for potential future rate hikes if they decide to raise rates this week, thereby bolstering the local dollar. 

Moreover, the Australian dollar could also experience gains if China’s PMI data for July shows signs of improvement. The official manufacturing and non-manufacturing PMIs are due on Monday, while the Caixin manufacturing and services PMIs are expected on Tuesday and Thursday, respectively. 

EUR: ECB considers pause as Euro eyes flash CPI 

The European Central Bank has taken a dovish stance this week, refraining from committing to further rate increases. This shift in approach is a response to softer inflation readings and mounting indications that the Eurozone economy may be heading towards a recession. 

In light of this, the upcoming flash CPI numbers for July will play a critical role in shaping expectations for additional rate hikes in the euro area this year. The headline inflation rate, which declined to 5.5% y/y in June, is projected to drop further to 5.3% in July, reaching its lowest level in one and a half years. 

However, underlying inflation, measured by core CPI excluding volatile items like food and energy, saw a slight uptick in June to 5.5%. The forecast suggests it may slightly decrease to 5.4% in July. Still, any unexpected increase in core inflation could lead to a reduction in bets that the ECB is finished with raising rates. 

Furthermore, preliminary GDP estimates for the second quarter will also be unveiled on Monday. While economic growth was stagnant in the first quarter, GDP is expected to have experienced a modest expansion of 0.1% in the three months to June. 

Given the uncertainty surrounding future rate hikes, the euro’s performance will be highly sensitive to price and growth indicators leading up to the September meeting. 

More data updates and OPEC meeting: 

On Thursday, Switzerland will be keeping an eye on CPI numbers, and New Zealand will be closely monitoring their quarterly jobs data. Additionally, Canada is set to receive employment figures for July on Friday. 

A positive labor market report in Canada could increase the chances of the Bank of Canada implementing another rate increase this year, which would strengthen the Canadian dollar (also known as the loonie). 

Weekly Market Outlook - OPEC

Conversely, the Canadian currency is not likely to be significantly impacted by the meeting of OPEC and non-OPEC countries on Thursday, as no major changes to their output quotas are expected. Recent oil futures have been rising due to the cuts announced by Saudi Arabia and Russia, along with hopes of pro-growth policies in China boosting demand. 

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