With the major central bank meetings out of the way, market participants will return to headline trading out of Europe. It’s very evident at this point that without a major easing package (the Bank of England, the European Central Bank, and the People’s Bank of China all eased slightly at the end of last week), risk-correlated assets will remain under pressure. Accordingly, filling the economic data void, some key Chinese figures are due out in the coming days that could break the back of a positive risk landscape.
07/11 Wednesday // --:-- GMT: CNY New Yuan Loans (JUN)
The People’s Bank of China cut its key interest rate back to 6.00% last week, the second such rate cut in a month and only the second time since the financial crisis. The results of the first cut are predicted to have begun flowing to the economy, with New Yuan Loans forecasted to rise to 880.0 billion from 793.2 billion in June.If loans continue to rise, price pressures should rise again, which have fallen significantly (with the CPI now at 2.2% year-over-year and the PPI at -2.1% y/y).Strong loans data should be beneficial to risk sentiment. The key pairs to watch are AUDJPY and AUDUSD.
07/11 Wednesday // 18:00 GMT: USD Fed Releases Minutes from June 19-20 FOMC Meeting
At the June 19 to 20 Federal Open Market Committee meeting, policymakers decided to extend Operation Twist through the end of the year rather than implement another full blown asset purchase program. With that said, it’s likely the Minutes from the meeting contain some explicit language concerning a third round of quantitative easing, with perhaps figures to watch for that would prompt the ‘necessity’ of a more accommodative monetary policy. Considering that the result of the meeting disappointed, we don’t believe risk-appetite will be receive much support following the release of the Minutes. The key pair to watch is USDJPY.
07/12 Thursday // 01:30 GMT: AUD Employment Change and Unemployment Rate (JUN)
The Australian economy has seen significant jobs growth the past few months, cruising by expectations and surprising market participants given the deteriorating growth outlook for Australia’s largest trading partner, China.The economy has added 123.3K jobs since January alone. But this trend will halt, according to forecasts. According to a Bloomberg News survey, the economy is forecasted to have neither gained nor lost any jobs, and this is expected to send the Unemployment Rate back to 5.2 percent from 5.1 percent. Alongside the Consumer Inflation Expectation for July, which should show further weakness given weak commodity prices and a slowing Chinese economy, Thursday appears to be lining up to be a weak day fundamentally for the Australian Dollar. The key pairs to watch are AUDJPY and AUDUSD.
07/13 Friday // 02:00 GMT: CNY Real Gross Domestic Product (2Q)
This is the most important event of the week. How dire in a situation is the Chinese economy? We shall find out this Thursday, when the Chinese second quarter headline growth figure is due. According to a Bloomberg News survey, growth slowed to an annualized rate of 7.7 percent in the second quarter, below the 8.1 percent GDP reading for the first quarter. It is likely that growth comes in on the weaker side, however, when considering the first quarter estimate of 8.4 percent; estimates have been riding high for Chinese data and the key figures have missed to the downside (especially in light of the inflation data released on Sunday before this report was written). We expect growth in the 7.6 to 7.9 percent range. A weak figure will stoke some serious risk-aversion, while a print above 8.0 percent could prompt profit taking among shorts and some near-term support for the commodity currencies, the Australian, Canadian, and New Zealand Dollars. The key pairs to watch are AUDJPY, AUDUSD, NZDJPY, and NZDUSD.
07/13 Friday // 13:55 GMT: USD U. of Michigan Confidence (JUL P)
After confidence declined to its lowest level of the year in June, it looks like sentiment has steadied among American consumers. The preliminary U. of Michigan report for July is expected to show a rebound to 73.5 from 73.2, according to a Bloomberg News survey. This will come in below the three-month and the 2012 averages of 76.3 and 75.9, respectively. Sustained low Crude Oil prices as well as US equity markets that rebounded off of their June 1 lows could prompt a small bounce in confidence, but with a weakening US labor market and a questionable growth picture over the coming months, we don’t expect the U. of Michigan Confidence preliminary July reading to improve greatly at all. The key pairs to watch are EURUSD and USDJPY.
Rate Hike Probabilities / Basis-Points Expectations
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--- Written by Christopher Vecchio, Currency Analyst
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