Forex Major Currencies Outlook (July 15 – July 19)

USD

FED chairman Powell began his testimony to Congress with remarks that uncertainties and concerns about global economy since June meeting continue to weigh in on the US economic outlook. The FED will act as appropriate to sustain US growth. There is a risk weak inflation will be even more persistent than what FED currently anticipates. Current levels of wage growth are not enough to put upwards pressure on inflation. Concerns were raised about high and rising federal debt and relative stagnation of middle and lower incomes, also housing manufacturing looks to have dipped again in Q2. Overall dovish tone of the statement sent USD lower across the markets and all but cemented the rate cut in July.

CPI for the month of June came in at 1.6% y/y as expected down from 1.8% y/y the previous month while core CPI surprised to the upside coming in at 2.1% y/y vs 2% y/y as expected and as previous month. Real average hourly earnings climbed to 1.5% y/y vs 1.3% y/y the previous month and real average weakly earnings came in better than expected at 1.2% y/y. Rise in real earnings is a very encouraging sign for the US workers and US economy as a whole.

This week we will get consumption and housing data as well as data on industrial production.

Important news for USD:

Tuesday:

• Retail Sales
• Industrial Production

Wednesday:

• Building Permits

EUR

German industrial production for the month of May came in at 0.3% m/m vs 0.4% m/m as expected but yearly figure shows the full scope of the issue coming in at -3.7 y/y for a deep plunge. The drop in y/y reading indicates that recovery in the economy will not be achieved in Q2. After the drop in business investor confidence survey concerns about possible resumption of QE program started to mount. Industrial production in the Eurozone came in at 0.9% m/m vs 0.2% m/m as expected with -0.5% m/m for the previous month. Great rebound can be attributed to jump in French numbers which were boosted by Airbus aircraft production. Italy also published better than expected data.

European Commission has cut outlook for Euro Area citing rising downside risks in the form of trade tensions and political uncertainties. GDP growth for 2019 in unchanged but 2020 GDP is lowered for Eurozone as well as for Germany and France. For all the areas GDP has been lowered to 1.4% from 1.5% previously. Inflation in Eurozone has also been cut to 1.3% from 1.4% previously.

This week we will get economic sentiment data for both EU and Germany, trade balance and final inflation numbers for the month of June in the Eurozone.

Important news for EUR:

Tuesday:

• ZEW Economic Sentiment Indicator (EU and Germany)
• Trade Balance

Wednesday:

• CPI

GBP

GDP for the month of May came in at 0.3% m/m as expected. The main contributor to the headline reading was car production which bounced back from the lows of the previous month. However, due to the weak GDP reading in April it will take a June GDP reading of 0.8% m/m in order for Q2 GDP to turn flat and likelihood of that happening is very low. Therefore, we are in for a negative Q2 GDP reading. Manufacturing and industrial production as well as construction output missed the estimates but came in positive for the month thus showing a rebound from the previous month when all three categories were negative. Trade balance came in at -£11.5bn vs -£12.6bn as expected and -£12.8bn the previous month. Lowering of deficit was achieved with exports rising 3.5% and imports falling -0.6%.

Financial stability report published by BOE shows that the risk of a no-deal Brexit has risen and that it could cause a material economic disruption, however UK banks could withstand it. Governor Carney stated that UK financial system is ready for Brexit regardless of the form it takes. However, other parts of the UK economy still has more preparing to do for the Brexit.

This week we will have employment data as well as inflation and consumption data.

Important news for GBP:

Tuesday:

• Unemployment Rate
• Claimant Count Change
• Average Weekly Earnings

Wednesday:

• CPI

Thursday:

• Retail Sales

AUD

CPI from China for the month of June came in at 2.7% y/y as expected. The number is distorted since food prices have risen by 8.3% due to bad weather while non-food prices rose by mere 1.4% which represents third month in a row of easing pressures. PPI on the other hand came in flat at 0% y/y, lowest reading since August of 2016. These data add more wind to the idea that PBOC will further ease their policy. Chinese customs released trade balance data first for H1 and it showed trade surplus of 1.23 trillion Yuan. Exports were up 6.1% y/y while imports were up 1.4% y/y. Total trade with US was down 9% y/y but trade surplus increased by 12% y/y to 954.8bn Yuan on the back of plunging imports -25.7% y/y for H1 and lower exports -2.6% y/y. Monthly exports in June declined 1.3% while imports declined 7.3% vs 4.8% decline as expected for a surplus of $50.98bn vs $45bn as expected.

This week we will have GDP, consumption, industrial production and investment data from China. From Australia we will get RBA meeting minutes along with employment data. Since employment is one of RBA’s mandate it will be very closely monitored for decisions on possible future rate cuts.

Important news for AUD:

Monday:

• GDP (China)
• Retail Sales (China)
• Industrial Production (China)
• Fixed Asset Investment (China)

Tuesday:

• RBA Meeting Minutes

Thursday:

• Employment Change
• Unemployment Rate

NZD

Card spending for the month of June came in flat at 0% m/m vs 0.7% m/m as expected with prior month showing -0.5% m/m. A decent rebound from the previous month, albeit weaker than expected and since card spending constitutes around 70% of core retail sales we can expect a rebound in the reading. BusinessNZ Manufacturing PMI came in at 51.3 vs 53.1 as expected but up from 50.2 the previous month. Less than expected rise in the reading which was achieved with huger rise in finished stocks which rose to 57.6.

This week we will have inflation data for Q2. Latest data incoming has not been encouraging and if inflation slips, we will increasing pressures for the rate cut in August. We will also get bi-weekly GDT price index which has been slipping for four consecutive months and services PMI.

Important news for NZD:

Monday:

• Services PMI

Tuesday:

• CPI
• GDT Price Index

CAD

BOC has kept the overnight rate at 1.75% as widely expected. In the statement they have acknowledged material effect on the global economic outlook produced by the trade tensions and added that trade conflicts between the United States and China, in particular, are curbing manufacturing activity and business investment and pushing down commodity prices. They feel that accommodation provided by current rate remains appropriate. Annual Q1 GDP has been raised to 0.4%, Q2 has been raised to 2.3% from 1.3% while Q3 GDP has been projected at 1.5%. Q2 growth came stronger than predicted due to temporary factors, including reversal of weather-related slowdowns and a surge in oil output. Key factors behind the improvement in Canada’s economy are jobs growth, wages growth, rebound in consumer spending, exports and business investment.

This week we will get inflation and consumption data as well as data on manufacturing sales.

Important news for CAD:

Wednesday:

• CPI
• Manufacturing Sales

Friday:

• Retail Sales

JPY

Wages data showed a drop in both cash earnings and real cash earnings in May with former coming in at -0.2% y/y vs -0.6% y/y as expected and latter coming in at -1% y/y vs -1.5% y/y as expected. Both categories came in better than expected but this is the fifth consecutive month of falling wages and it cannot act to spur any consumption and economic growth.

This week we will have trade balance data and national inflation data.

Important news for JPY:

Thursday:

• Trade Balance
• Exports
• Imports

Friday:

• CPI

CHF

The seasonally adjusted unemployment rate for the month of June slipped down to 2.3% indicating even tighter conditions in the labour market. These are the lowest numbers since April of 2002.

This week we will have trade balance data.

Important news for CHF:

Thursday:

• Trade Balance
• Exports
• 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.
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