Markets are waiting for publication of the Fed and ECB protocols this week (we expect consolidation of the EURUSD and USDJPY

Trading 08 juil 2019 Donner votre avis

After the turbulent events of last week, and especially on Friday, some stabilization is observed in the currency markets, which, in our opinion, is associated with the expectation of a new piece of economic data, primarily from the US, as well as with the speech of Fed Chairman J. Powell, which is scheduled for today.

From the economic data, which will undoubtedly attract attention, the values of consumer inflation in China will be published, where it is expected to maintain its annual growth rate of 2.7%. But, for the month of June, there was a decrease of 0.1% against a slight increase in May with 0.1%. The data of GDP is also interesting which includes the volume of industrial production in the manufacturing industry and employment in the UK, as well as the figures of the consumer price index in Germany and the United States. However, the central events of this week will be the publication of the minutes of the latest meetings of the ECB and the Fed on monetary policy, the speech of the head of the Federal Reserve J. Powell and a number of his colleagues in the US Central Bank.

Moreover, in our opinion, the decision of the Central Bank of Canada on monetary policy will be a local event. No surprises are expected here. It is assumed that the key interest rate will remain unchanged at 1.75%.

Meanwhile, going back to the publication of the protocols of the ECB and the Fed, recall that the President of the European Central Bank, M. Draghi, has already made it clear several times that the regulator is considering the possibility of expanding incentives to revive economic activity in the region. Moreover, the European economy continues to fall into recession, as indicated by the recently published data, primarily production indicators. Investors expect the protocol to be more concrete about possible future actions. We assume that if the protocol focuses on this, then the single currency will be under pressure. The local stock market will get a new reason for local growth.

A similar situation arises in relation to the expectations on the prospects of the Fed's monetary policy. Earlier, amid signals of decelerating growth of the US economy and "soft" statements by members of the US regulator and its head Powell, the markets decided that this year, we should expect the beginning of a cycle of lowering interest rates, which is clearly manifested in the dynamics of futures on Federal fund rates, which at the time of writing, has indicated the probability of a decrease in the key interest rate of 94.1%. But, strong data was published on Friday showing the number of new jobs for the month of June and somewhat dampened these hopes. If, by Friday, investors believed that on July 31, following the results of the meeting, the Fed is expected to lower rates by 0.50%. Now, these expectations are adjusted for the probability of a decline by only 0.25%.

We believe that if it retains the key concepts of a high probability of lowering rates and concerns about the sustainability of economic growth, this will put pressure on the dollar and give optimism to investors, which will cause a new wave of demand for risky assets. At the same time, if the protocol reveals the preservation of the regulator's supervisory position, it will support the dollar and lead to a weakening of the demand for risky assets.

Of course, the speech of Fed Chairman J. Powell this week will be important. If he comments on Friday's data from the labor market and is optimistic about the prospects for the state of the country's economy, this will be perceived by the markets as negative in relation to the cycle of lowering interest rates and will lead to strengthening the dollar.

Forecast of the day:

The EURUSD pair is consolidating above 1.1215 in anticipation of the publication of the ECB and Fed protocols, as well as Powell's speech. We expect that it may continue to move in a narrow range above this mark or adjust to 1.1260 if the price holds above the level of 1.1215.

The USDJPY pair is trading above the level 108.25. It has prospects of continuing local growth to 108.70, and then to 109.15 after a period of consolidation, if it holds above the level of 108.25.



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