FOREX ECONOMIC CALENDAR TALKING POINTS:
- The second week of July will largely focus on the counterparties in the US-China trade war: of the ten ‘high’ rated events on the DailyFX forex economic calendar this week, half are due from either China or the United States.
- Volatility should build into midweek as four of the top five events for the week ahead are due out on Wednesday, July 10.
- Retail trader positioning is hinting at an improved environment for higher yielding currencies and risk-correlated assets in the coming days.
07/10 WEDNESDAY | 01:30 GMT | CNY Consumer Price Index (JUN)
Despite the détente declared in the US-China trade war after the G20 summit in Osaka, Japan, traders will want to keep on eye on USDCNH prices for the foreseeable future. Plainly,China has used devaluation as a tool to ward off the effects of the tariffs, so Chinese Yuan strength (USDCNH weakness) may be interpreted as a sign that the trade talks are nearing a positive resolution; Chinese Yuan weakness (USDCNH strength) may be interpreted as a sign that the trade talks are nearing a negative resolution. Indeed, the 7.000 exchange rate for USDCNH may be the most important level for currency markets.
07/10 WEDNESDAY | 08:30 GMT | GBP Gross Domestic Product (MAY)
The lack of clarity over Brexit, thanks in part to the ongoing Tory party leadership election, is proving to weigh on UK consumer and business confidence, and in turn, weigh on UK growth expectations. Recent UK PMI readings have been declining across the board, and rates markets are quickly shifting into discounting an interest rate cut by the Bank of England. Now that the June UK Composite PMI has moved into contraction territory, traders should be on the lookout for more deceleration in UK growth rates in the coming months.
07/10 WEDNESDAY | 14:00 GMT | CAD Bank of Canada Rate Decision
The Bank of Canada’s July policy meeting will likely come and go without making too many waves. While its neighbor to the south in the Federal Reserve has been raising expectations for a series of interest rate cuts this year, the BOC has been able to fend off dovish calls amid a surprisingly resilient Canadian economy (despite volatile swings in oil prices). Odds of a BOC rate cut at the July meeting are less than 3%, and odds of a 25-bps rate cut by the end of the year remain below 25%, according to overnight index swaps.
07/10 WEDNESDAY | 18:00 GMT | USD June FOMC Meeting Minutes
An environment marked by the uncertainty of the US-China trade war is filtering through into uncertainty over monetary policy. To wit: when asked about Fed policy and the US-China trade war at the June Fed meeting press conference, Fed Chair Powell took a roundabout way of saying that a US-China trade deal could eliminate the need for a Fed rate cut. Inherently, then, while rates markets are heavily leaning towards rate cuts now, it also appears that there is a significant risk of the Fed’s bias swinging back towards hawkish very quickly if a US-China trade deal materializes.
07/11 THURSDAY | 12:30 GMT | USD Consumer Price Index (JUN)
According to Bloomberg News, headline CPI is expected in at +1.6% from +1.8%, and Core CPI is due in to hold at 2.0% (y/y). The June US inflation report on Thursday will keep expectations elevated that the start of the rate cut cycle is going to begin shortly; Fed funds futures are pricing in a 100% chance of a 25-bps rate cut in July and, overall, a 51% chance of a 75-bps rate cuts (three 25-bps rate cuts) by December.
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--- Written by Christopher Vecchio, CFA, Senior Currency Strategist
To contact Christopher, email him at email@example.com