Talking Points:

- The British Pound’s rally looks like more like short-term profit taking rather than the start of a turn into a longer-term bullish trend.

- After the New Zealand Dollar’s latest rebound, the RBNZ is likely to reiterate its desire to see a weaker NZD/USD exchange rate on Wednesday.

- The Euro really only has one day this week when market moving data will be released – and it doesn’t come until Friday.

Join me on Mondays at 7:30 EDT/11:30 GMT for the FX Week Ahead webinar, where we discuss top event risk over the coming days and strategies for trading FX markets around the events listed below.

Miss the webinar earlier today? Watch the FX Week Ahead strategy session for a discussion of the above events.

06/20 Tuesday | 07:30 GMT | GBP Bank of England Governor Carney’s Mansion House Speech

Bank of England Governor Mark Carney will speak at a breakfast event at the Mansion House against a backdrop of Brexit negotiations and a new team member. The governor may also give a few hints about the last MPC meeting that saw a 5-3 vote for a hike in interest rates from 0.25% to 0.50%, against a 7-1 vote the meeting before. With UK inflation nearing 3%, a level that will require Carney to write a letter explaining the overrun to Chancellor of the Exchequer Philip Hammond, hawkish talk has started to spread although a rise in interest rates looks unlikely for the foreseeable future.Governor Carney may also welcome Professor Silvana Tenreyro to the MPC. Tenreyro will take the chair of leaving member Kristin Forbes, who since March has voted for interest rates to be hiked, including at last Thursday’s BOE meeting.

Pairs to Watch: EUR/GBP, GBP/JPY, GBP/USD

06/21 Wednesday | 21:00 GMT | NZD Reserve Bank of New Zealand Rate Decision

The Reserve Bank of New Zealand meets this week amid economic data and financial markets having shifted meaningfully since they last met on May 11. While there hasn’t been an inflation release in the interim for the RBNZ to pass judgment on, the NZD/USD exchange rate has rebounded sharply, up around +6% since the May 11 meeting. In context of the what was said at the last meeting, the Kiwi strength will not be taken kindly.

Recall, “The trade-weighted exchange rate has fallen by around 5 percent since February, partly in response to global developments and reduced interest rate differentials. This is encouraging and, if sustained, will help to rebalance the growth outlook towards the tradables sector.” It thus appears that the RBNZ is poised to reiterate a similar stance to that of the February meeting, when it suggested that the NZD/USD exchange rate would be better for the New Zealand economy if it were seven to eight cents cheaper (roughly 0.6600). We expect a dovish tone on Wednesday.

Pairs to Watch: AUD/NZD NZD/JPY, NZD/USD

06/22 Thursday | 18:00 GMT | MXN Bank of Mexico Rate Decision

The Bank of Mexico raised its benchmark overnight rate by 0.25% to 6.75% at its last meeting on May 18 and is likely to hike again to 7.00% on Thursday as inflationary pressures continue to build. Inflation rose for the 11th straight month in April to 6.16%, the highest level since April 2009, driven by energy, food and housing costs.

The Mexican Peso has rallied strongly since mid-January against the USD, despite US President Donald Trump’s repeated warnings of trade embargoes. The currency is currently trading at, or close to, its strongest level against the greenback since August 2016. A ‘golden cross’ bullish technical signal – the 20-day SMA moving below the 100-day SMA – occurred on February 20 around 20.50. USD/MXN currently trades at 17.9805.

Chart 1: USD/MXN Daily Chart (November 16, 2016 to June 19, 2017)

FX Markets Turn to Central Banker Speakers, RBNZ Decision, Canadian CPI

Pairs to Watch: USD/MXN

06/23 Friday | 08:00 GMT | EUR Euro-Zone PMIs (JUN P)

The first look at the closely watched Markit PMIs are likely to show the indices at a marginally lower level than May’s six-year highs. The composite PMI is expected to nudge lower to 56.5 from 56.8, indicating second-quarter Eurozone GDP growth of around +0.7%, a touch higher the Q1 growth of +0.6%. Moreover, the strength of the Eurozone economy can be clearly seen in the performance of the single currency against the US Dollar in the past few months. EUR/USD traded at a low of 1.0340 on January 3 and last traded at 1.1176, after having touched a 7-month high of 1.1296 on June 14.

Pairs to Watch: EUR/GBP, EUR/JPY, EUR/USD

06/23 Friday | 12:30 GMT | CAD Consumer Price Index (MAY)

Canadian inflation is expected to have fallen further below the central bank’s medium-term target of +2.0% in May (this weaker inflation is in line with the BOC’s April Monetary Policy Report). The BOC has judged that the economy has almost fully adjusted to weaker energy prices. Nevertheless, at the Bank of Canada’s recent policy meeting on May 24, the central bank left rates unchanged at 0.50%. On inflation, the BOC said, “Food prices continue to decline, mainly because of intense retail competition, pushing inflation temporarily lower. The Bank’s three measures of core inflation remain below two per cent and wage growth is still subdued, consistent with ongoing excess capacity in the economy.” The reading this week is expected to produce another result that sees disinflation, at +1.5% y/y from +1.6% y/y in May.

Despite the prospect of inflationary pressures easing moving further below the BOC’s +2% medium-term goal, the overall optimistic tone in the BOC’s latest policy statement (as has been reflected by the Canadian Dollar strength since the May BOC meeting) has been reflected in overnight index swaps, which are pricing an 82% chance of a rate hike by the end of the year. A print lower on inflation this week could deflate these odds a bit, weighing on the Canadian Dollar.

Pairs to Watch: CAD/JPY, EUR/CAD, USD/CAD

Miss the webinar earlier today? Watch the FX Week Ahead strategy session for a discussion of the above events.

--- Written by Christopher Vecchio, Senior Currency Strategist and Nick Cawley, Market Analyst

To contact Christopher, email him at cvecchio@dailyfx.com.

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