Last week, trading in financial markets took place against the backdrop of the expectations of the G20 leaders meeting in Osaka (Japan), which began on Friday and should be completed on weekends. The focus of investors will be focused on the outcome of the meeting between US President Donald Trump and PRC President Xi Jinping, which is scheduled for Saturday.
Investors hope that the leaders of the two countries with the largest world economies will be able to agree on the conclusion of a new trade agreement, although the prospects for such an agreement are very vague because of the intransigence of the parties and mutual demands.
Against this background, investors preferred to sell the dollar and buy defensive assets, such as the yen, the franc, government bonds, gold, the price of which reached last week a new annual and almost 6-year peak near the mark of 1439.00 dollars per troy ounce. The last time the price of gold was near this mark in August 2013. The dollar index DXY was unable to recover from the losses incurred in the previous week, when it lost more than 1.8%, falling to March levels.
If the meeting between Donald Trump and Xi Jinping ends in nothing, then most likely the global stock indices will again drop, and the Fed will have to reduce the interest rate in July (the Fed meeting is scheduled for July 30-31). And this is a strong fundamental factor, negative for the dollar.
One way or another, it is possible that on Monday trading will start with a gap, primarily in dollar pairs.
Contradictory macro statistics coming in last week from the United States also exerted pressure on the dollar. So, Chicago’s business barometer (Chicago Purchasing Managers' Index (PMI)), which is interconnected with the ISM Business Index and measures economic activity in Illinois, Indiana and Michigan, dropped below 50 in June, the first time since January 2017. Just four months ago, this indicator was 64.7.
Next week will be less saturated with important events, and on Thursday, July 4, the USA will celebrate Independence Day, and the American trading floors will be closed.
The center of the investors' attention will be the RBA meeting, devoted to monetary policy issues, a meeting of the leaders of the oil sector in OPEC+ countries, the publication of PMI business activity index for China, the United States, as well as the publication of data from the American and Canadian labor markets (on Friday).
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 July 01
OPEC and a number of countries outside the cartel, including Russia, agreed at the end of last year on a coordinated reduction in total production by 1.2 million barrels a day, starting in January 2019. This arrangement led to higher prices. However, American oil companies consistently increased production, strongly leveling OPEC's efforts to stabilize the oil market.
It is likely that OPEC will extend the term of restrictions on production in the second half of this year, given China’s economic weakness and the slowing global economy. Such a decision of this organization should support the price of oil.
01:45 CNY Index Caixin (PMI) activity in the manufacturing sector
This indicator is a leading indicator of the state of the manufacturing sector in China. China's economy is the second largest in the world, so the publication of important macroeconomic indicators from China can have a strong impact on the entire financial market. Forecast: 50.0 in June (against 50.2 in May, 50.2 in April, 50.8 in March, 49.9 in February and 48.3 in January).
A value below 50 indicates a slowdown, and a relative decline below this value may have a more negative effect on the yuan's quotes. The growth of the rate and the value above 50 is a positive factor for the yuan. If the data turns out to be better than the forecast, then the yuan will strengthen against the dollar, which will probably also have a positive effect on commodity prices and commodity currencies, such as the New Zealand and Australian dollars.
14:00 USD Index (PMI) of business activity (from ISM) in the manufacturing sector of the US economy
The PMI business activity index in the manufacturing sector of the US economy, published by the Institute for Supply Management (ISM), is an important indicator of the state of the American economy as a whole. A result above 50 is considered as positive and strengthens the USD, below 50 as negative for the US dollar. Forecast: 51.5 in June (versus 52.1 in May, 52.8 in April, 55.3 in March). Obvious downward trend, and the relative decline in the indicator may adversely affect the dollar.
Tuesday 02 July
04:30 AUD Interest rate decision. RBA accompanying statement
Forecast: the rate will be reduced by 0.25% to 1.00%. According to many economists, the RBA will be forced to ease its monetary policy, given the weak wage growth and slowdown in the Australian economy, especially due to the growing threat of a slowdown in the US and Chinese economies against the background of the trade conflict between these countries. The United States, and especially China, are Australia’s closest trade and economic partners.
In the second half of 2018, the growth of the Australian economy almost stopped. On an annualized basis, it slowed down to about 1% from 4% in the first half of the year. The government has already announced a tax cut of 13 billion Australian dollars from the next fiscal year, which begins on July 1, and the last draft budget of December 1 provides for a reduction of income tax of 9 billion Australian dollars.
The deterioration in the prospects for the world economy makes interest rate cuts in Australia inevitable. This is a strong negative factor for the Australian dollar. However, the expected reduction in the interest rate on July 2 is already largely taken into account by market participants. Probably, the market reaction to this RBA decision will be restrained, unless, of course, the RBA announces the continuation of the rate reduction cycle. If the RBA signals the likelihood of another one or two rate cuts this year, the fall of the Australian dollar will be inevitable.
09:30 AUD Speech by the head of the RBA Philip Lowe
During his speech, Philip Lowe will explain the central bank’s interest rate decision and assess the current situation in the Australian economy. He will probably also indicate 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 a sharp increase in volatility in the AUD trading and in the Australian stock market.
Wednesday 03 July
14:00 USD Business Index (ISM) in the service sector
This indicator assesses the state of the service sector in the US economy. Forecast: 56.0 in June (against 56.9 in May). The growth of the rate and the result above 50 are considered as a positive factor for the USD. However, the relative decline in the indicator may have a short-term negative impact on the dollar.
Thursday 04 July
Publication of important macro statistics is not planned.
USA celebrates Independence Day. US banks and exchanges will be closed, which will lead to a fall in trading volumes in the second half of the trading day.
Friday 05 July
12:30 USD Average hourly wage. The number of new jobs created outside the agricultural sector (NFP). Unemployment rate
The most important indicators of the state of the labor market in the US in June. Forecast: +0.3% (against +0.2% in May) / 158 000 (against 75 000 in May) / 3.6% (against 3.6% in May), respectively.
Overall, the indicators can be called strong, given that unemployment is at multi-year lows. If they come out better than the forecast, it will have a more positive impact on the USD. However, it is often difficult to predict the market response to the publication of indicators, since some prior periods values are often revised. In any case, when publishing data from the US labor market, a surge in volatility is expected in trading not only for USD, but on the entire financial market. Probably the most cautious investors would prefer to stay out of the market during this time period.
12:30 CAD. Change in employment in Canada. Canadian unemployment rate
Statistics Canada will release data on the country's labor market for June. Previous value: +27,700 employees (in May). If the growth in the number of people employed in June is weaker than the previous value (the forecast is +8,000 people employed), then the Canadian dollar may respond with a decrease.
Unemployment in May was 5.4% (5.7% in April, 5.8% in March and February). In the case of rising unemployment, the Canadian dollar will decline. If the data is better than the previous value, the Canadian dollar will strengthen. A decrease in unemployment is a positive factor for CAD, a rise in unemployment is a negative factor. Forecast: 5.6% in June. The relative growth of the value is likely to adversely affect CAD.
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