Gold prices hit new 14-month highs last week near $1358.00 per ounce, and the yield on 10-year US government bonds last week fell to almost 2-year lows near 2.060%.
Investors are alarmed by conflicts in the Middle East, foreign trade disputes and a slowdown in economic growth, forcing them to move away from risks into defensive assets.
The decline in US government bond yields is also associated with forecasts that the Federal Reserve will lower interest rates by the end of the year. Published last Wednesday, weak data on inflation in the US added arguments to investors, which putting on the Fed rate cut.
Nevertheless, the dollar strengthened sharply last Friday, which allowed the DXY dollar index to grow significantly and almost completely offset its decline in the previous week. At the same time, by the end of the trading day on Friday, gold quotes returned to the close of the previous week's marks near $1341.00 per ounce, i.e. showed almost zero growth at the end of last week.
The dollar was supported by a strong growth in retail sales in May. The Fed takes into account this indicator in its rate decision, as US economic growth largely depends on the consumer sector. Retail sales data showed that American consumers are not yet experiencing the negative effects of a slowdown in economic growth. In addition, before the Fed meeting next week, other important macro data are no longer expected.
Next week, traders will focus on the publication of important macro statistics for Germany, the Eurozone, New Zealand, Canada, including data on consumer inflation in the UK, Canada, as well as on the results of the meetings of the central banks of the USA, Japan, and the UK.
As always, the publication of a number of important macroeconomic data is expected during the new trading week and number important news will be published.
*) specified time – GMT
Monday June 17
Publication of important macro statistics is not planned.
However, you should pay attention to the results of the hearing of the report on inflation in the UK. The Governor of the Bank of England and members of the Monetary Policy Committee of the Bank of England will speak in Parliament with comments on the current economic situation and the outlook for the economy. At this time, the volatility in the bidding for the pound may rise sharply. One of the main benchmarks for the Bank of England in terms of monetary policy prospects in the UK, in addition to GDP, is the level of inflation. If the tone of the report is soft, then the British stock market will receive support, and the pound will decline.
Conversely, the harsh rhetoric of representatives of the Bank of England regarding the containment of inflation, implying a rise in interest rates in the UK, will lead to a strengthening of the pound.
At the same time, the prospect of hard Brexit does not allow the Bank of England to begin to consider the issue of tightening monetary policy. Rather, on the contrary, in order to maintain the British economy during this period, the Bank of England may have to soften its monetary policy.
Tuesday June 18
01:30 AUD Minutes from the last meeting of the RB of Australia
This document is published two weeks after the meeting and the decision on the interest rate. If the RBA positively assesses the state of the labor market in the country, GDP growth rates, and also shows a “hawkish” attitude towards the inflation forecast in the economy, the markets regard this as a higher likelihood of a rate hike at the next meeting, which is a positive factor for AUD. The soft rhetoric of the bank regarding inflation, above all, puts pressure on the AUD.
At the June 4 meeting, the central bank lowered the key rate to a record low of 1.25% from 1.50%, where it has been located since August 2016. RBA leaders called increased uncertainty in world trade a risk to the Australian economy. "There is reason to expect a lower key rate", said Philip Lowe, Governor of the Reserve Bank of Australia, after the meeting of the RBA.
According to Lowe, the latest economic forecasts of the RBA include the assumption that the key rate will be reduced twice to the end of this year, to 1%.
Probably, the minutes from this meeting of the RBA will only confirm the tendency of the bank’s management to implement this scenario. This is a strong fundamental factor in favor of further weakening the Australian dollar.
09:00 EUR Sentiment Index in the Business Environment of the ZEW Institute in Germany
This index reflects the difference between the share of optimistic and pessimistic investors, thus assessing the mood of investors and business. The growth of the indicator and its positive value indicates an optimistic mood of investors, which is a bullish factor for EUR.
And, conversely, the decline in the indicator and its negative value is a negative factor for EUR. In May, the indicator value was -2.1.
Forecast: the indicator reading for June will be 0.5, which is unlikely to strongly support the euro after the fall in May. If the indicator is even weaker, the euro will decline in the short term.
Wednesday June 19
08:30 GBP Consumer price index. Core CPI
The consumer price index (CPI) reflects the dynamics of retail prices for a group of goods and services that are part of the British consumer basket. The CPI is a key indicator of inflation. Around its publication, will be the main movement of the pound in the foreign exchange market and of the London Stock Exchange FTSE100 index.
In the previous month (in April), consumer inflation increased by + 0.6% (in annual terms, inflation in April amounted to + 2.1%). Forecast for May: + 0.7% (+ 2.2% in annual terms). This value is likely to have a positive effect on the quotes of the pound, since rising inflation will put pressure on the Bank of England to tighten monetary policy. Indicator's value below the forecast and the previous values may trigger a weakening of the pound.
The Core Consumer Core Index (CPI) is published by the Office of National Statistics and determines the price change of a selected basket of goods and services (except for food and energy) over a given period. It is a key indicator for assessing inflation and changing consumer preferences. A positive result strengthens the GBP, a negative one - weakens.
In April, the Core CPI (in annual terms) increased by + 1.8% (against + 1.8% in the previous month). Probably, the publication of the indicator will positively affect the pound, if its value for May is higher than the previous value (forecast for May: + 1.9%). Indicator's value below the forecast and the previous values may trigger a weakening of the pound.
12:30 CAD Consumer Price Indices in Canada
The Core Consumer Price Index (Core CPI) from the Bank of Canada reflects the dynamics of the retail prices of the corresponding basket of goods and services (excluding fruits, vegetables, gasoline, fuel oil, natural gas, mortgage interest, inter-city transport and tobacco products). The target inflation rate for the Bank of Canada is in the range of 1% -3%.
The growth of CPI rate is a precursor to a rate increase and a positive factor for CAD. Consumer prices in April rose by 2% (in annual terms) and the Core Consumer Price Index rose by + 1.5%. If the data for May are worse than the previous values, then this will have a negative impact on CAD. Data better than the forecast and above the previous values will strengthen the Canadian dollar.
Forecast for May: the Core Consumer Price Index will come out with a value of 1.2%, which is likely to have a short-term downward pressure on CAD.
18:00 USD The decision of the Fed on the interest rate. Summary of economic forecasts from the Federal Reserve Committee of the US Federal Reserve. Fed comment on monetary policy
It is widely expected that the rate will remain at the same level of 2.5%. After the decision on the interest rate, the Fed will publish a comment on monetary policy (FOMC Statement). The report increases the volatility of the USD. The hard tone of comments regarding future plans of the Fed strengthens the US dollar, and a soft tone - weakens.
The Economic Projections Committee's economic forecast report includes the Fed's FOMC report on inflation and growth over the next 2 years and, equally important, shows the individual opinions of FOMC members on interest rates.
During the publication of the rate decision and the FOMC report, a surge in volatility is expected across the entire financial market, primarily on the US stock market and in dollar quotes.
Powell's comments can affect both short-term and long-term USD trading. A more “hawkish” position on the Fed’s monetary policy is seen as positive and strengthens the US dollar, while a more cautious one is evaluated as negative for the USD. Any hints of Powell to increase the interest rate will cause the strengthening of the dollar and the fall of US stock markets.
Investors want to hear his opinion on the Fed’s plans for this year, after the central bank leaders, including Powell, have repeatedly expressed their cautious assessment regarding the prospects and pace of monetary tightening by the Fed, focusing on the risks associated with international trade conflicts. Many financial market participants are betting that the Fed will cut the rate at least once before the end of the year.
18:30 USD FOMC (US Federal Open Market Committee) Press Conference
Press conference of the FOMC of the US Federal Reserve lasts about an hour. The first part reads the resolution, followed by a series of questions and answers that can increase market volatility.
Powell's comments can affect both short-term and long-term USD trading. A more “hawkish” position on the Fed’s monetary policy is seen as positive and strengthens the US dollar, while a more cautious one is evaluated as negative for the USD. Powell’s hints of interest rate hikes will lead to a stronger dollar and falling US stock markets.
Soft rhetoric will have a negative impact on the dollar and support the stock markets. It is more likely that Powell will express a propensity to maintain current monetary policy. But even if he declares the possibility of lowering the rate, this does not mean at all that the Fed will do that.
22:45 NZD GDP of New Zealand for the 1st quarter
Publication of data will cause increased volatility in the NZD. Against the background of rising prices for agricultural products in recent times (especially for dairy products, which are the most important component of New Zealand exports), it is likely that the report on New Zealand's Q1 GDP will come with positive indicators, and this will have a positive effect on the positions of the New Zealand currency.
Forecast: + 0.7% (previous value + 0.6%) and + 1.8% in annual terms (previous value + 2.3%). If the data is better than the forecast, the NZD will strengthen.
Thursday June 20
01:15 AUD Speech by the head of the RBA Philip Lowe
In the course of his speech, Philip Lowe will assess the current situation in the Australian economy and point out further plans for the monetary policy of the department entrusted to him. Any signals from his side regarding changes in the plans of the monetary policy of the RBA will cause an increase in volatility in the AUD trading and in the Australian stock market. If he does not touch on the topic of monetary policy, then the market’s reaction to his performance will be weak.
After earlier in June, the Reserve Bank of Australia lowered its key interest rate by 25 bps. to 1.25%, for the first time since August 2016, bank manager Philip Lowe did not rule out further lowering the key interest rate. "There is reason to expect a lower key rate", said Lowe. "The likelihood of lowering interest rates is still not excluded", Lowe added.
02:00 JPY Bank of Japan interest rate decision. Bank of Japan Press Conference and Monetary Policy Comment
Bank of Japan will decide on the interest rate. Currently, the main discount rate in Japan is in negative territory, amounting to -0.1%. Most likely, the rate will remain at the same level. If the rate is lowered and deepened into negative territory, such a decision will cause a sharp decline in the yen in the foreign exchange market and growth in the Japanese stock market. In any case, during this period of time, a jump in volatility is expected in trading in the yen and in the Asian financial market.
During the press conference, the head of the Bank of Japan Kuroda will comment on the monetary policy of the bank. The Bank of Japan continues to adhere to its ultra-soft monetary policy. As Kuroda repeatedly stated earlier, "it is appropriate for Japan to patiently continue the current soft monetary policy". Markets usually respond noticeably to Kuroda performances.
Surely, he will again touch on the topic of monetary policy during his speech, which will cause an increase in volatility, not only in trading in the yen, but throughout the Asian and global financial markets.
04:30 JPY Press Conference of the Bank of Japan
During the press conference, the head of the Bank of Japan Kuroda will comment on the monetary policy of the bank. Despite earlier measures taken by the bank to stimulate the Japanese economy, inflation remains low, production and consumption are falling, the yen is growing, which has a negative effect on export-oriented Japanese producers. Markets usually respond noticeably to Kuroda performances.
If he touches on the topic of monetary policy during his speech, volatility will increase not only in trading in the yen, but throughout the Asian and global financial markets.
11:00 GBP Bank of England interest rate decision. Minutes of the meeting of the Bank of England. Planned volume of asset purchases by the Bank of England
It is expected that the rate will remain at the same level of 0.75%. In August 2018, the rate was increased by 0.25%, the second time in the last 10 years, despite the fact that wage growth slowed down and the uncertainties associated with Brexit increased. Economists believe that the next increase in rates will not happen before 2020, but the balance of risks is shifted towards an even later period in the continuation of monetary tightening.
Despite the postponement of Brexit, the uncertainty about the future relationship between the UK and the EU persists, and the postponement of Brexit does not exclude its hard scenario. In this situation, the Bank of England, most likely, will not change its monetary policy.
Also, at this time the minutes of the Bank of England Monetary Policy Committee (MPC) are published with the distribution of votes “for” and “against” the increase / decrease in the interest rate. The main risks for the UK after Brexit are associated with expectations of a slowdown in the country's economic growth, as well as with a large current account deficit in the UK balance of payments.
The asset purchase program by the Bank of England, also called Quantitative Mitigation, has remained unchanged since August 2016 at 435 billion pounds per month. Probably, the volume of bond purchases by the Bank of England on the open market will remain at the same level of 435 billion pounds in the coming month.
And yet, the intrigue about the future actions of the Bank of England remains. And in the trade of the pound and the FTSE100 index, a lot of trading opportunities are provided during the publication of the bank’s decision on rates.
Friday June 21
07:30 EUR Index (PMI) of business activity in the manufacturing sector of the German economy according to Markit Economics (preliminary release)
The PMI business activity index in the manufacturing sector of the German economy is an important indicator of business conditions and the general state of the German economy. This sector of the economy forms a significant part of Germany’s GDP. A result above 50 is regarded as positive and strengthens EUR, below 50 as negative for the euro.
Forecast for June (preliminary release): 44.5. Previous values: 44.3 in May, 44.0 in April (after falling from the level of 49.7 in January), which indicates a certain tendency for the PMI index to recover after falling at the beginning of the year in this sector of the German economy. The growth of the rate may support the euro (in the short term), although its value is still below the value of 50.
08:00 EUR Composite index (PMI) of business activity in the manufacturing sector of the Eurozone economy according to Markit Economics (preliminary release)
The PMI business activity index in the Eurozone manufacturing sector is an important indicator of the state of the entire European economy. A result above 50 is regarded as positive and strengthens EUR, below 50 as negative for the euro.
Forecast for June (preliminary release): 51.7 versus 51.8 in May (versus 51.5 in April, 51.6 in March, 51.9 in February and 51.0 in January), which is likely to have a positive effect on the euro in the short term, despite a slight relative decline.
12:30 CAD Retail Sales Index
The Retail Sales Index is published monthly by Statistics Canada and estimates total retail sales. The index is often considered an indicator of consumer confidence and reflects the state of the retail sector in the near term. Index growth is usually a positive factor for CAD; a decrease in the rate negatively impacts on CAD.
The previous values of the index: + 1.1% (for March), + 0.8% (for February). If the April data is weaker than the forecast (+ 1.0% is expected to grow) or the previous value, then CAD may decline.
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