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⚖️ From the Australian Dollar’s recent turmoil to the British Pound’s struggles amid fears of recession, find out what’s happening and what to expect in the coming weeks.
📊 Plus, get insights into the factors affecting the price of Gold and US Crude Oil – will demand uncertainty and rising rates continue to stifle growth?
💰 EUR/USD fights for growth, even with USD weakening at the week’s start.
💱 Eyeing the ECB Central Bank Forum amid easing Russia tensions.
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EUR/USD Faces Economic Woes and Obscure Trading Range Amidst ECB Forum Anticipation”
EUR/USD is facing headwinds as it trades in a narrow range around 1.0900 amid the absence of any significant economic data today.
The Eurozone and Germany’s PMI surveys, along with the IFO Business Climate Index, indicate a significant loss in growth momentum and a probability of the German economy shrinking in Q2.
The worsening economic outlook is expected to limit the Euro’s potential gains on growing expectations of the ECB reassessing the need for further rate hikes after July.
The attention now turns to ECB President Christine Lagarde’s welcome remarks at the Annual ECB Forum on Central Banking with a theme titled “Macroeconomic Stabilization in a Volatile Inflation Environment.”
The introductory speech by Lagarde along with ECB policymaker speeches could sway market sentiment and result in a move in EUR/USD’s price action.
The market environment for the American trading hours could be risk-averse, leading to a potential downward stretch in EUR/USD.
Investors are closely monitoring the eurozone’s preliminary June CPI, which will be released later this week. Germany’s 10-year breakeven is currently hovering between 2.20% and 2.40%, while Italy’s is around 2.10% to 2.30%.
UK’s breakeven recently hit 3.94%, the highest for the year, but has since dropped to below 3.77%. In contrast, the US 10-year breakeven ranges between 2.15% and 2.30% this quarter.
The Euro is currently trading around $1.09, while sterling is hovering above $1.27. CFTC data shows a record rise in speculative net long sterling futures position.
Chinese Markets Reopen Amidst Anticipation for Beijing’s Stimulus Measures and Tokyo’s Economic Indicators on the Horizon
Chinese markets have reopened after a two-day holiday last week, and investors are eagerly anticipating new stimulative measures from Beijing as the MSCI Asia Pacific equity index fell all week.
Despite the decline, the Chinese economy is still on track to meet its GDP target of 5% for the year.
The Politburo’s semi-annual conference at the end of next month may discuss new economic initiatives. Additionally, the Shanghai Clearing House will launch a new initiative using digital yuan.
In Japan, May retail sales, employment, and industrial production will be reported in the second half of the week, and Tokyo’s June CPI will offer useful insight into the national figure.
The correlation between changes in the exchange rate and US interest rates remains high, with softer US yields and potential policy adjustments from BOJ helping to stabilize the yen after it dropped to new lows.
Market and Fed Divergence on Interest Rate Hike Expectations, Canadian CPI Release, and Aussie and Kiwi Dollars Experience Minor Drops
Market expectations for a interest rate hike next month show a gap between the market and the Fed’s projections
The futures market currently has the likelihood of a hike at just over 70%. However, this is lower than the probability estimated by the market just before the last FOMC meeting in June.
Despite numerous calls for additional hikes by Fed officials recently, the market has remained largely unchanged. January Fed futures imply a year-end effective rate of 5.24%, which may increase to 5.57%-5.58% if the Fed delivers two more quarter point hikes this year.
The upcoming PCE deflator release later this week could result in a market response, particularly if the core rate continues to increase.
Meanwhile, tomorrow Canada will report its May CPI, which is expected to have risen by 0.4% annually. Despite this, the annual pace in 2021 is still much lower than the same period last year.
The weighted core median has averaged 4.6% this year, while the trimmed core mean has risen an average year-over-year rate of 4.6%, unchanged since last year.
The swaps market is discounting a 67% chance of a hike at the July 12 Bank of Canada meeting and is fully discounted by the September 6 meeting.
The US dollar is currently trading near a nine-month low against the Canadian dollar, settling at CAD1.3185. Though it has not moved much above this level, the CAD1.3200-20 area offers nearby resistance.
Lastly, The Australian dollar and New Zealand dollar are both experiencing minor drops as the dollar rallies to new seven-month highs.
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