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Majors, US Dollar Forecast

Forex Weekly Outlook July 25-29

A busy week saw plenty of action in the yen and the pound, and a stronger dollar in general. A jey German survey,  GDP data from the UK Canada and the US and rate decisions in the US and in Japan stand out. These are the major events on forex calendar. Join us as we explore the market-movers for this week.

The European Central Bank maintained interest rates unchanged  noting they will offer further policy stimulus if required.  ECB President Mario Draghi warned that Britain’s Brexit and weak emerging market growth will have negative effects on the euro zone’s outlook. Weak UK PMIs weighed on the pound in a turbulent week.  Speculation about helicopter money drove the yen up and down. More talk  regarding rate cuts pressured both the Aussie and kiwi and the loonie  struggled with sliding oil prices. All in all, the dollar’s OK data was good enough to keep it bid against most currencies. Let’s start:

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  1. G20 Meetings: Sat-Sun. The G20 meeting scheduled to be held in China is likely to deal with currency manipulation, and the Brexit. The United States Treasury Secretary is expected to reiterate that the US economy remains strong despite the economic turmoil around the Brexit. Policy discussions will continue to emphasize the need to move away from relying exclusively on monetary policy to support growth. The UK and Japan are expected to lead the discussion towards co-ordination in fiscal spending with monetary policy.
  2. German Ifo Business Climate: Monday, 8:00. German business confidence improved for the second consecutive month in June, rising to 108.7 from 107.8 in May. The reading was better than the 107.6 forecast.  However the survey did not include Britain’s Brexit vote. Respondents were upbeat about the current condition. The main improvement occurred in the manufacturing, construction and wholesaling sectors. Economists expect a downturn in business moral after the Brexit vote. German business moral is expected to decline moderately to 107.7 in July. The ZEW indicator already  turned negative.
  3. US CB Consumer Confidence: Tuesday, 14:00. Consumers were more optimistic in June reaching the highest level since October. Consumer Confidence rose to 98 from May’s revised figure of 92.4. Economists estimated a reading of 93.7. The majority of respondents expected business conditions would improve to 26.9% from 26.1%. But, fewer consumers said that jobs were “plentiful” in June. All in all, the reading suggests solid growth in consumer spending. Us consumer confidence is expected to decline to 95.6 this time.
  4. UK GDP data: Wednesday, 8:30. Britain’s economy expanded by 0.4% in the first quarter, down from 0.6% in the final three months of 2015. Weaker global trade and the new year turbulence in the financial markets were the main forces behind the weak reading. The government’s decision to hold a referendum was not taken into account during the first three months, but may effect growth in the coming months. Service sector growth offset the falls in production, construction and agriculture. Following the 1st quarter gain, the economy is almost 8% stronger in the period before the recession in early 2008. The second quarter growth rate is expected to be 0.5%.
  5. US Durable Goods Orders: Wednesday, 12:30.  Orders for long-lasting products declined across the board in May. As orders fell 2.2% after a revised gain of 3.3% in April. Analysts expected a small decline of 0.5. Meanwhile, core capital orders contracted 0.3% compared to a 0.5% gain in the prior month.  This major economic event has been down five of the last seven months. The slowdown in domestic business spending may undermine the Fed’s confidence that the economy will rebound during the rest of 2016. Durable Orders are expected to drop 1.1%, while core orders are predicted to gain 0.3%in June.
  6. US Crude Oil Inventories: Wednesday, 14:30. Crude inventories declined by 2.3 million barrels last week while economists expected a 1.3 million barrel drop. The larger than expected stocks suggest the market is not strong enough. Oil prices edged up 1%, lifting U.S. crude from two-month lows. However, U.S. gasoline prices hit four-month lows after a surprise increase in supplies of the motor fuel despite forecasts of a busy driving season.
  7. Fed decision: Wednesday, 18:00.  Federal Reserve officials decided to maintain their monetary policy unchanged in light of the slowdown in job growth. The Fed kept rates at 0.50% while leaving the door open for two more rate hikes this year. However, Fed officials lowered their expectations for future years, expecting the funds rate to rise to 1.6% in 2017, compared to the 1.9% estimate in March, and to 2.4% in 2018, from the previous forecast of 3.0%. This time, no new forecasts and no press conference are due. In light of Brexit, the Fed is expected to maintain its policy unchanged again.  Perhaps the recent  improvement in recent US data could make the statement more positive, but a clear hint of a rate hike in September is very unlikely. It seems that Yellen and co. will wait for at least after the elections. A hint about a hike earlier than that could send the dollar higher, while a dovish Fed, which is more likely, could weigh on the greenback.
  8. US Unemployment Claims: Thursday, 12:30.   The number of initial claims for unemployment benefits remained steady last week at 253,000, down 1000 from the week before. This reading was the 72nd consecutive week that initial claims were below 300,000, the longest streak since 1973. The four-week moving average for claims declined by 1,250 claims to 257,750. Continuing jobless claims fell by 25,000 to a 2.128 million. The number of new claims is expected to reach 261,000.
  9. Japan Rate decision: Friday. The Bank of Japan failed to offer additional monetary stimulus in June despite subdued inflation and weak global growth. BOJ Governor noted he is ready to provide further monetary easing in case the yen gains endangers prospects for achieving the bank’s ambitious 2 % inflation target. The BOJ maintained its asset buying program, pledging to increase base money at an annual pace of 80 trillion yen and kept the 0.1% negative interest rate. While Kuroda claims he has plenty of ammunition to ease further, some BOJ officials have openly questioned the central bank’ ability deliver especially after the recent denial of helicopter money. Without any meaningful steps, the yen could shoot higher.
  10. Canadian GDP data: Friday, 12:30. The Canadian economy grew at 0.1% in April after contracting 0.2% in the previous month. The arts, entertainment and recreation sectors fell 3.9%, keeping growth nearly flat, because no National Hockey League playoff games took place in April. Meanwhile, economic output improved in the manufacturing and service sectors, but mining and oil and gas extraction continued to decline, weighing on GDP growth. The 0.1% growth rate was in line with market forecast.
  11. US GDP data: Friday, 12:30. The U.S. economy grew at a mild pace of 1.1% (annualized) in the first quarter of 2016 according to the final read. Lukewarm consumer spending, global turmoil, a slowdown in the manufacturing sector and weak business investment all weighed down growth. With the low growth since the start to the year positions America for another year of weak economic growth. GDP is expected to gain around 2% in 2016. However, analysts estimate a pickup in growth during the coming months. 2.6% is on the cards now.

That’s it for the major events this week. Stay tuned for coverage on specific currencies

*All times are GMT.

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Anat Dror

Anat Dror

Anat Dror Senior Writer I conceptualize, design and create multi-lingual websites. Apart from the technical work, my projects usually consist of writing content for these sites in English, French and Hebrew. In the past, I have built, managed and marketed an e-learning center for language studies, including moderating a live community of students. I've also worked as a community organizer