Last week, the dollar came under strong pressure from verbal intervention. Fed Chairman Jerome Powell, in his speeches in the US Congress on Wednesday and Thursday, explicitly hinted at the inclination of the Fed leadership to ease monetary policy.
"The uncertainty surrounding the global economy and international trade continues to negatively affect prospects", Powell said during his speech before the Financial Services Committee in the House of Representatives.
He also noted that the sustainability of inflation weakness “is an argument in favor of a more stimulating monetary policy”, stating that “there is a risk that inflation weakness will be even more stable than we currently expect”.
He also said that the Fed intends to "act in the appropriate way to support economic growth".
Financial markets expect that at the next Fed meeting at the end of July, interest rates will be lowered by a quarter percentage point.
However, some of the leaders of the central bank, judging by the minutes published last Wednesday from the June Fed meeting, are ready to vote for the interest rate cut by 50 bp at once.
As arguments in favor of lowering interest rates, Fed leaders cite low inflation in the United States, slower growth in other economies, trade conflicts, and unresolved fiscal problems that exert downward pressure on the US economy.
On the easing of monetary policy in recent years reflect not only in the Fed. So, in particular, the minutes of the European Central Bank’s June meeting, published on Thursday, showed that, due to low inflation, the Central Bank management is considering additional ways to stimulate the Eurozone economy. Judging by the protocols, the ECB leadership is preparing to lower the key interest rate and restart the bond redemption program by 2.6 trillion euros.
Of a number of the world's largest central banks, which are ready to lower interest rates in the near future, only the Bank of Canada, which preserved its monetary policy unchanged last week, stands out. The Bank of Canada left the interest rate at 1.75%, and bank manager Steven Poloz said that the central bank could consider lowering the key interest rate if difficulties with global trade conflicts increase.
Next week, investors will pay attention to the following economic events. This is a publication of important macro data for China, New Zealand, Great Britain, Germany, USA, Canada, Australia.
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 15
02:00 CNY GDP for the 1st quarter
The National Bureau of Statistics of China will present data on GDP growth in the 2nd quarter.
In the previous quarter, GDP growth was + 1.4%. China's GDP is expected to increase by 1.5% in the 2nd quarter (+ 6.2% in annual terms against + 6.4% in the 1st and 4th quarters). China is the largest buyer of commodities and supplier to the global commodity market for finished products of the widest range. China's economy is the second largest in the world after the US. Therefore, the publication of important macroeconomic indicators from China can have a strong impact on the entire financial market. The tense situation in trade relations between the United States and China reinforces the fear that the fall of the yuan and the slowdown in economic growth in China may have an impact on world markets.
The growth of the rate will have a positive impact on the Chinese yuan, as well as on world, first of all, Asian stock indexes, as well as on the quotations of commodity currencies, such as the New Zealand and Australian dollars.
China is the largest trade and economic partner of Australia and New Zealand and the buyer of commodities from these countries.
Therefore, positive macro statistics from China have a positive effect on the quotations of these commodity currencies.
The relative decline in GDP may have a negative impact on the renminbi quotations, as well as on the commodity and Asian-Pacific currencies, as may indicate a slowdown in the Chinese economy.
22:45 NZD CPI (Consumer Price Index) for the 2nd quarter
The Consumer Price Index (CPI) is a key indicator for estimating inflation and reflects the dynamics of retail prices for a group of goods and services that make up the consumer basket. A positive result strengthens the NZD, a negative one - weakens.
Forecast: + 0.3% (against + 0.1% in the 1st quarter, + 0.1% in the 4th quarter). The growth of the rate is likely to positively affect the quotes NZD. In annual terms, CPI increased in the 2nd quarter by + 1.7% (against + 1.5% in the 1st quarter and + 1.9% in the 4th quarter).
Tuesday, July 16
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 probability of a rate hike at the next meeting, which is a positive factor for AUD. The soft rhetoric of the bank, primarily in relation to inflation, will put pressure on the AUD.
At the July 2 meeting, the central bank lowered the key rate to a record low of 1.00% from 1.25%. This is the second reduction in this year. Earlier, on June 4, the bank lowered the rate by 0.25% from the level of 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.
08:30 GBP Report on the average salary of the British over the past 3 months. Unemployment rate
The National Statistics Office of the United Kingdom (ONS) publishes a monthly report on average earnings, including the period for the last 3 months, including premiums and no premiums.
This report is a key short-term indicator of the dynamics of changes in the level of wages of employees in the UK. Earnings growth is a positive factor for GBP, and a low value of the indicator is negative. Forecast: the July report suggests that the average wage, including bonuses, increased in the last 3 months calculated (March-May) by 3.2% (against + 3.1% and + 3.2% in previous periods); without premiums - by 3.5% (against + 3.4% and + 3.3% in previous periods). This is positive data. If they coincide with the forecast or turn out to be better than it, the pound will probably strengthen in the foreign exchange market.
Also, at this time published data on unemployment in the UK. For 3 months from March to May, unemployment was expected to be at the level of 3.8%, against 3.8% in the previous period. Since 2012, the unemployment rate in the UK has steadily decreased. This is a positive factor for the pound.
If data from the UK labor market is worse than the forecast and the previous value, then the pound will be under pressure.
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 June, the indicator value was -21.1.
Forecast: the indicator reading for July will be -19.0, which is unlikely to strongly support the euro after the fall of the indicator in previous months. If the indicator is even weaker, the euro will decline in the short term.
12:30 USD Retail sales (excluding car sales). Retail control group
This report (Core Retail Sales Ex Autos) reflects the total sales of retailers of all sizes and types, with the exception of car dealerships. The change in retail sales is a major indicator of consumer spending. The report is leading, and in the future data can be greatly revised. High results strengthen the US dollar, low - weakens. The forecast for June is + 0.3% (against + 0.5% in May). The relative decline in the indicator may have a short-term negative impact on the dollar.
Retail sales is the main indicator of consumer spending in the United States, showing changes in retail sales. The Retail Control Group indicator measures volume across the entire retail industry and is used to calculate price indices for most products. A high result strengthens the US dollar, and vice versa, a weak report weakens the dollar. A slight increase in value is unlikely to accelerate the growth of the dollar. Data worse than the forecast will adversely affect the dollar in the short term. Forecast for June: + 0.4% (against + 0.4% in May).
17:00 USD Speech by Fed Chairman Jerome Powell
After Powell’s speech last week in Congress, where he unambiguously hinted at a tendency to mitigate the Fed’s monetary policy, investors will be waiting for new signals from him regarding the prospects for monetary policy and the Fed’s actions at a meeting July 30 - 31.
If he does not touch on monetary policy issues, then the reaction to his speech will be weak.
Wednesday, July 17
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 index of the London Stock Exchange FTSE100.
In the previous month (in May), consumer inflation rose by + 0.3% (in annual terms, inflation growth in May was + 2.0%).
Forecast for June: + 0.3% (+ 2.0% in annual terms). This value may adversely affect the quotations of the pound, since low inflation will force the Bank of England to adhere to a soft course of monetary policy. Value of the indicator 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 May, the baseline CPI (in annual terms) increased by + 1.7%. Probably, the publication of the indicator will positively affect the pound, if its value is higher than the forecast. Forecast for June: + 1.7% (in annual terms). 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 is a precursor to a rate increase and a positive factor for CAD. Consumer prices in May increased by 2.4% (in annual terms) and the base consumer price index rose by + 2.1%. If the data for June is worse than the previous values, this will adversely affect the CAD. Data better than the forecast and above the previous values will strengthen the Canadian dollar.
The forecast for June: the core consumer price index will come out with a value of + 2.6%, which is likely to have a positive impact on CAD.
Thursday, July 18
01:30 AUD The level of employment. Unemployment rate. The proportion of labor in the total population
The employment rate reflects the monthly change in the number of employed Australian citizens. The growth of the indicator has a positive impact on consumer spending, which stimulates economic growth. A high value is a positive factor for AUD, and a low value is negative.
Forecast: in June, the number of employed Australian citizens increased by 27,800 people (against +42300 in May, +28,400 in April, +25,700 in March, +4,600 in February, +39,100 in January). Also at the same time, the Australian Bureau of Statistics will publish a report on unemployment - an indicator that measures the ratio of the unemployed population to the total number of able-bodied citizens. The growth of the rate indicates a weak labor market, which leads to a weakening of the national economy. The decline is a positive factor for AUD. Forecast: Unemployment in Australia in June was 5.2% against 5.2% in May and April, 5% in March, 4.9% in February and 5% in January and December.
Also, among the data provided by the Bureau of Statistics of Australia, indicator of the share of labor in the total population will be published. This is the percentage of the total number of working-age population considered to be labor (either employed or are in search of work).
Forecast for June: 66.0% against about the same level in previous months (66.0% in May, 65.8% in April, 65.7% in March, 65.6% in February, 65.7% in January).
In general, the indicators can be called positive. If the values of the indicators are worse than the forecast, then the Australian dollar may be significantly reduced in the short-term. Data better than forecast will strengthen AUD.
Friday, July 19
14:00 USD University of Michigan Consumer Confidence (preliminary release)
This indicator reflects the confidence of American consumers in the economic development of the country. High value indicates growth, while low indicates stagnation. The previous indicator value is 98.2.
The growth of the rate will strengthen the USD, and a decrease in value will weaken the dollar. It is expected that this indicator will be released in July with a value of 98.0, which may have a positive impact on the dollar in the short term, despite a slight relative decline. Data better than the forecast will certainly support the dollar.
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