Review of the week 10th-15th July 2017.

Last week was supposed to be a strong week for the USD but instead, it turned into a devastating one for the greenback currency.
For example, check out our two Trade of the Week trades which sold the Greenback and bought the CAD and GBP.

The Fed

The Fed Chair Janet Yellen did not solidify her positive views, providing the dollar with the catalyst it needed to hit new highs. She instead expressed her deep worries about low inflation and these worries were confirmed by the last consumer price report.

CPI growth was stagnant for the month of June and that had made the annual CPI rate to drop to its lowest level in 8 months. Slow growth wouldn’t be such a big deal if retail sales increased but instead, spending thinned for the second month in a row by -0.2% in June. As has been the norm over the past few months, the Federal Reserve was unable to inspire any lasting strength in the currency while U.S. data continued to disappoint. The attention of the financial market has been focused on economic prints out of the U.S. economy of late.

The monetary report that was released to the congress before the arrival of Fed Chair seemed to catch trader’s attention as the final paragraph of the report reiterated the ‘Fed Put’ that has assisted in keeping equityy prices elevated. To review, the Fed put is an idea that will likely loosen their monetary policies in order to match the decline in the equity market.

ECB

The next big event was the European Central Bank’s monetary policy meeting. The meeting was prompted by worries from investors that Mario Draghi will disappoint in the same way as Janet Yellen after EUR/USD struggled to extend its gains above 1.15 following its earlier rise a year high of 1.1490. His comments last month prompted the euro to rise to a year high against the greenback and everyone’s attention will now be turning towards the ECB press conference to see whether his hawkishness is repeated or downplayed. In June, Draghi surprised many when he said: “the threat of deflation is gone and deflationary forces are at play” with indications pointing towards changing their policy stance from accommodative to unchanged.

The Loonie

The best performer for the week was the CAD which raced to a 14-month high versus the greenback. For the first time in 7 years, the Bank of Canada raised interest rates by 25bp and upgraded their 2017 and 2018 GDP forecasts in the process. This automatically made them the second major G7 central bank to tighten policy and gave investors no reason to believe that they will stop.

The Aussie

The AUD has also seen improvements as the consumer inflation expectations have risen and combined with increase s in consumer and business confidence, the currency does look strong. It is not all good news for others though as the Reserve Bank won’t be happy to see the currency climb further since their last monetary policy meeting and the 3 Australian policy makers scheduled to speak next week (Heath, Debelle, and Bullock) could use these opportunities to try to talk down the currency.

The Cable

The GBP is closely watched by investors to see if the pair GBP/USD will rise and by how far. The pair rose to a year high when it climbed from 1.3050 to 1.3114. The pair have performed excellently over the week as we review its overall movement.

Forecast for the week 17th-21st July 2017.

EUR/USD on the back foot ahead of ECB week

With the pair peaking at 1.1475, they are running through a fresh seller in Asia and a renewed risk-on wave has gripped the market in upbeat Chinese data dump and this has dampened the sentiment that surrounded the funding currency Euro.

EUR/USD awaits ECB for fresh direction

With the USD disappointing, the main forex currency pair remains under pressure amid the holiday-thin trading. Good news though is, the pair remains capped with Friday’s ECB headlines, stating the fact that the central bank remains wary of putting an end-date in its QE asset purchases program and this continues to dent the sentiment around the common currency.

The main risk event for the week will be the ECB monetary policy decision due later this week. The decision making will provide fresh insights into what ECB’s plans are concerning tapering. The financial market also looks forward to the Eurozone final CPI and Empire State manufacturing index due later today for fresh trading impetus.