Weekly Forex Analysis

Week ahead

Dollar, goes up and down with other currencies

πŸ‡ΊπŸ‡Έ The recent economic data for the United States has been disappointing, leading investors to reconsider the necessity of another interest rate increase by the Federal Reserve before the contractionary phase concludes, potentially followed by more rate cuts next year. Consequently, the US dollar has shown signs of weakness in the financial markets.

This week, the dollar’s calendar is relatively uneventful. If economic data from other countries is released with weak figures, it could bolster the dollar’s strength. Conversely, if this data appears weak, it may lead to a correction in the dollar’s value. In the event that both the dollar and other currencies weaken, there is likely to be increased demand for the dollar as it is perceived as a safe asset.

It’s a funny theory Dollar Smile Theory

When the future outlook is abnormal, the demand for the dollar will be checked. If it rises, the dollar will be corrected and vice versa from this week. In the past, the sentiment of the market is risk-averse and it will continue on Monday, the dollar may not correct before it changes.

After a barrage of disappointing data for the US dollar in the past week, investors are now wondering whether another rate hike by the Federal Reserve is needed.

This week, more attention will be focused on the purchasing managers’ index of the US service sector, as reported by the ISM Institute. Both the preliminary Purchasing Managers’ Index of the manufacturing sector and the services sector from the S&P Global Institute increased the market’s expectations for no increase in interest rates and even a decrease in August. Taking this issue into consideration, the possibility of a decrease in the ISM index in the next week has also increased. However, reducing the likelihood of another rate hike by the Federal Reserve will also depend on the sub-indices of new orders and prices. If we see declines in these two categories as well, the US dollar and Treasury bond yields may remain under pressure and the stock market will continue to rise, as rising expectations of interest rate cuts could reduce the net present value (NPV) of companies with good growth.

πŸ“… Ziwox Calendar

Mixed EUR

πŸ‡ͺπŸ‡Ί Quietly, the “stagflation” scenario is making a comeback in discussions about the Eurozone’s economic future. The European Central Bank (ECB) has acknowledged that economic growth will be much weaker than their initial forecasts, and core inflation remains stubbornly above 5%. The ECB is expected to maintain its planned 0.25% rate hike at the September meeting, but some believe this could be a mistake.

Meanwhile, eurozone leaders are still considering whether to reinstate the Maastricht debt and deficit measures that were temporarily suspended during the pandemic. While this move might benefit government bond markets in the eurozone, it could have a negative impact on the euro due to less expansionary monetary policies and more contractionary fiscal policies. Prior to the pandemic, there were discussions about keeping the budget deficit below 3% of GDP.

This week, no important data will be released for the Eurozone.

Bank of England Decision Survey

πŸ‡¬πŸ‡§ The Office for National Statistics (ONS), which is Britain’s national data office, provided assistance to UK policymakers on Friday. They revised the GDP growth for 2021 to 1.7%. This indicates that the UK has achieved pre-pandemic growth earlier than previously estimated. As a result, Germany now appears to be the weakest performer among G7 countries in the post-pandemic period. This revision may also give the government more financial flexibility, and it wouldn’t be unexpected if there’s increased speculation about potential financial measures in the Chancellor’s Autumn Statement in November.

British stock market is at high levels, the sentiment is weak and if the British PMI is published in the weak service sector, it will put more pressure on it. Technically, we are close to a mid-term support level, and like the Euro, we can have a recovery movement to the price volume area in the event of a break, and with the failure of the floor and pullback, the downward trend will continue to lower levels, which will be updated, in general, if possible. The price of maintaining this floor is placed in a range box.

High-risk market assets

The Australian dollar, Canadian dollar
πŸ‡¨πŸ‡¦ BOC will hold a meeting on Wednesday and decide on the interest rate. Their previous decision was to raise interest rates by 0.25 percent, and on the other hand, low inflation data for Canada reinforces this assumption for not raising interest rates. Inflation in Canada is currently higher than the Bank of Canada’s 2% target. However, since Canada’s core inflation rate is closer to that target compared to other major economies, Now adopt a wait-and-see approach to determine whether the past interest rate hikes continue to put downward pressure on prices or not. Anyway, Possible gains for the Canadian dollar after the central bank meeting may depend largely on Friday’s employment report for August.

πŸ‡¦πŸ‡Ί Interest rate decision on Tuesday, Sep 5. Its result can influence the market’s expectations about the future path of monetary policies of other currencies. Australia’s central bank officials did nothing to interest rates in the previous session. Expectations again for the bank to keep interest rates unchanged, the unemployment rate in Australia has increased from 3.5% to 3.7%, and core inflation in Australia has decreased from 5.4% to 4.9% annually, which makes the possibility of no interest rate hike for Australia.

Economic calendar

Important news/events for this week:

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Week ahead

What has the Fed planned for the dollar?

The US non-farm payrolls printed 236,000 jobs in March, above the 230k consensus and the unemployment rate dropped to 3.5%.
This week’s core inflation number is likely to come in at 0.4%.
So we have More jobs, less unemployment, and high inflation.
This could be Powell’s only reason for further rate hikes, although these are the last rate hikes and must favor a final 25bp Fed rate hike in May.

However the printed data was lower than expected, there were 17k of downward revisions to the past two months but on the positive side, the bulk of the jobs added were in full-time positions. For this reason, the market considered the strength of the dollar.

Fed will be in a policy pivot

All traders are waiting for the outlook for the US jobs numbers, but the statement from Fed officials indicates that they strongly insist on curbing inflation. The Market priced a 25bp hike rate for 3 May.

We consider only a 25bp hike for this week’s meeting. the Fed will indeed hike 25bp, but see the Fed rapidly reversing course later this year.

US CPI data for March will be released on Wednesday. After it, the Federal Reserve will release minutes, where officials raised interest rates by 0.25% but changed their policy rhetoric. They pointed out that the interest rate may increase. So all traders are waiting for this week’s CPI data because it could be a driver for the USD and a sign of Fed decisions.

Will the central bank of Canada reduce interest rates?

Wednesday is the Bank of Canada, BOC interest rate decision. An important day for CAD traders.

BOC, At their last meeting, decided to keep interest rates unchanged, It making Canada the first central bank to not raise interest rates in their hawkish policy cycle. The central bank of Canada announced that the latest economic data is in line with the central bank’s expectations, so we can expect no increase in interest rates for Canada this week.

BOC Bank of Canada

BOC PRESS CONFERENCE, On Wed Apr 12, Any word that suggests interest rate cuts are coming soon could put pressure on the Canadian dollar.

Australian jobs data is the most important clue for traders

The Reserve Bank of Australia has hinted in past statements that further contraction may be needed in the future, so AUD traders should pay close attention to Thursday’s Australian employment report. We are also keeping an eye on China’s CPI and PPI data to be released on Tuesday, as China, the world’s second-largest economy, is Australia’s main trading partner and could influence traders’ decisions for the currency.

If the employment report will be weak, it could reinforce the Reserve Bank of Australia to stop interest rate hikes and could pressure on AUD.

Economic calendar

Important events:

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