Weekly Currencies Bulletin


Markets around the globe have been awaiting what will come next after US President Donald Trump and his Chinese counterpart Xi Jinping agreed to a second ceasefire at their G20 summit meeting. Officials have said the two sides are talking over the phone for now while markets hope to see them relaunching face-to-face negotiations. In the week ahead, more details regarding the nature of the talks will emerge as officials in Beijing and Washington make preparations.

The US Dollar index has gained strength from an upsurge in the non-farm employment figures that came at 224K versus forecasts as low as 160K. The employment rate for May was revised from 75K to 72K. The data can be seen as an indicator of the ongoing volatility in the US jobs growth.

In the spotlight will be central bank activity. The Bank of Canada (BoC) is set to meet up and decide its interest rate. No change in the 1.75% rate is expected but the BoC’s policy report will give clues regarding the bank’s medium-term plans in the face of slowing global economic growth as major banks starting from the Royal Bank of Australia have begun taking steps to safeguard their economies.

The account of the June European Central Bank (ECB) meeting will be watched to see if the bank, set to come under the leadership of the IMF director Christine Lagarde, pave the way for a rate cut this year given the trend that is starting to sweep across major economies.

Another important release will come from the US Federal Reserve as the bank will shed light on its policy by putting out the account its last FOMC meeting. The Fed is already under pressure from the trade war and the Trump administration to lower the federal funds rate.

The Euro’s fall was hastened after the US non-farm employment data for June that came rather positive. Increased growth rang a bell for to buy the Dollar despite other negative figures in the hourly wages and the revisions in the May set. In the week ahead, it is possible that the common currency will push up for a correction to the drop recorded at the time of writing this analysis. Two significant release that will help the Euro are going to be monetary policy reports from both the ECB and the Fed, while the latter is set to further cement its signal of a rate cut. A rebound due to the mentioned factors will first aim for 1.1260 and later 1.1300. A more upward target will be 1.1340 above the upper band of the long-time descending channel. If the bearish sentiment goes on, then 1.1180 and later 1.1140 will prove firm supports.

Similar to all other Dollar peers, the UK Pound came under stiff US non-farm employment data pressure that pushed the pair down below 1.2500 last seen in the last days of last year. However, this bias can be expected to wane in the upcoming trading days, given the recent stabilization in the Sterling largely due to ruling Tories’ leadership race. US Fed account of its June FOMC meeting that signaled a cut in federal funds rate -as global economic conditions require. In the current outlook for the pair, the Pound will try to recover towards the lower band of the straight-running blue channel. As such it might find support from the GDP and manufacturing figures to be released on Wednesday and forecast positive amidst the Brexit uncertainties. The recovery will first aim for 1.2560 and later 1.2600, to be followed by 1.2650, near the middle of the formation where it has been stuck for over seven weeks now. The nfp-induced pressure is likely to stop as the pair gets closer to the oversold area. 1.2450 and later 1.2400 will be the most downward the pair can get in the current technical and fundamental situation.

The Yen was another major currency that suffered from a re-ignited Dollar as the June US non-farm employment data came in. The upward momentum in the pair goes on as the first week of July comes to an end. BoJ Vice Chair has expressed readiness to use tools available such as further deepening of negative rates and even more stimulus to help the economy reach the 2 percent inflation target. No significant data will be flowing from Tokyo in the upcoming days, as such US figures including core CPI and PPI along with the accounts of Fed’s latest monetary policy meeting will be watched. A correction to the rise caused by the US nfp is likely to take the pair back to 108.00 level. Later 107.50 and 107.00 at the lower band of a month-long straight channel can be reached within the descending channel depending on how dovish the Fed will go. A steeper rise can target 108.70 at the upper band whose precinct was tested earlier. Further above is 109.00.

The Loonie was already bleeding due to expectations of weaker demand for oil this year as whole economies grapple with fears of slowing amid the trade wars waged by the Trump administration in the US. Opec’s decision to extend the cartel’s supply cut policy is only supporting oil prices at this point without much of a push-up. The stronger than expected non-farm employment data from Canada’s neighbor strengthened US Dollar. The shoot-up in the Dollar index much to the disadvantage of its pairs has begun to stall as the markets prepare for the trading days in the coming week. Bank of Canada’s interest move will be noted by investors although no change is expected in the 1.75% figure. US Fed’s monetary policy account from last month will give more ideas about its signaled rate cuts in the near future, although the latest jobs growth has cast doubts whether the central bank will move in that direction as early as was thought earlier. A move downward to be supported by the fundamentals in oil will pull the price down to 1.3060, near a six-month low we already recently saw. It is possible the Iran-US tensions and OPEC’s supply policy will further raise oil prices, in which case we might witness the Loonie aiming for 1.300. Further below 1.2970 can be a longer-term target. For further upward action, 1.3140 and less likely 1.3160 should be followed.


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