Forex Weekly Outlook – July 24-28 2017

The US dollar suffered for another week, with significant breakouts in some currencies. Will the Fed hit it when it’s down or mark a turnaround? Apart from the Fed decision, the upcoming week features consumer confidence, GDP, and durables. Here are the highlights for the upcoming week.

The failure of Senate Republicans to pass a new healthcare bil[1]l sparked the latest round of USD falls. The ground was already readied by last week’s poor data and Yellen’s caution. This was exacerbated by a deeper dive into Donald Trump’s dealing by Mueller[2]. The news sparked significant another significant USD sell-off. EUR/USD reached the highest in nearly two years[3] also on Draghi’s failed attempt to be dovish[4]  The Aussie reached for higher ground, helped by the RBA’s hawkish minutes[5]. Dollar/yen proved that the loss of uptrend support was meaningful[6] and the pound had a harder time as inflation softened in the UK.

Updates:

  1. US Existing Home Sales: Monday, 14:00. Most home transactions are of second-hand homes. A steady annualized level of 5.62 million was seen in May. We now get the data for June.
  2. CB Consumer Confidence: Tuesday, 14:00. Both this measure by the Conference Board and the University of Michigan’s measure have been sliding. The CB figure stood at 118.9 points in June.
  3. Australian CPI: Wednesday, 1:30. Australia published official inflation data only once per quarter, making every release more significant. This one is of special importance, just before the RBA decision which could see a rate hike, given the latest minutes. Both headline and the “trimmed mean” inflation measures increased by 0.5% back in Q1 2017.
  4. UK GDP: Wednesday, 8:30. Growth rates in the second half of 2016, right after the EU Referendum, remained robust. Things deteriorated in 2017 with a significant slowdown to a final rate of only 0.2% q/q. Signs for Q2 haven’t been promising. Will we see contraction this time?
  5. US New Home Sales: Wednesday, 14:00. Just before the Fed makes its decision, it will get an interesting indicator. Sales of new homes are correlated with overall growth in the economy. The month of May saw an accelerated level of 610K.
  6. Fed decision: Wednesday, 18:00. Is low inflation still transitory? This is the main question that investors will want to hear answers to. In the previous rate decision, the Fed raised interest rates to 1-1.25%[7] as expected and sounded confident about the economy. Fed Chair Janet Yellen dismissed the drop in core CPI as related to one-off factors such as prescription drugs and wireless charges. Since then, inflation remained subdued[8]. No change is expected this time and we will not get new forecasts nor a presser by the Fed Chair. The FOMC is expected to begin reducing its balance sheet in September, at a snail’s pace and to raise rates in December, with doubts about the latter creeping in. Markets will be analyzing every word in the statement to understand where the Fed is going. Note that the Fed will probably have seen the GDP data at its meeting.
  7. US Durable Goods Orders: Thursday, 12:30. Orders of durable goods dropped by 0.8% in May, while core sales rose by 0.3%. This is according to the upwards revised data. We will now get figures for June, which feed into the GDP assessment. Core orders reflect investment, which is eyed by the Fed for future growth.
  8. US GDP: Friday, 12:30. The first release of GDP growth for Q2 2017 is expected to show a pickup. The US economy grew by 1.6% in 2016 and 1.4% annualized in Q1 2017[9]. This is below the “new normal” which is a mediocre 2-2.5%. The first estimate tends to have the biggest impact on markets.
  9. Canadian GDP: Friday, 12:30. Canada releases its GDP figures once per month, allowing a closer look at the economy. The strong growth recently seen prompted a rate hike and upgraded forecasts[10]. On a monthly basis, the economy grew by 0.2% in April.

*All times are GMT

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