Forex Weekly Outlook July 29 – August 2 – All eyes on the Fed

The USD has gained some ground amid upbeat data and as other currencies suffered from their issues. The greenback now faces the ultimate test: the first Fed rate cut since the crisis. In addition, rate decision from Japan and the UK, and the all-important US Non-Farm Payrolls all promise an explosive week.   Here the highlights for the next week.

EUR/USD has hit new two-year lows at 1.1101 after the European Central Bank signaled a substantial stimulus package is coming in September but bounced quickly on Mario Draghi’s mixed message. In the UK, Boris Johnson won the Conservative Party’s leadership contest as expected, and entered 10 Downing Street with the same hardline messages on Brexit. The pound has been on the back foot.

1. Japan rate decision: Tuesday, early morning. The Bank of Japan would like to add monetary stimulus and match the actions of its peers – but is has few new tools in its shed. The BOJ already enacts a negative interest rate and keeps bond yields depressed with its massive QQE program. Governor Haruhiko Kuroda and his colleagues may enhance their pledge to do whatever it takes to push inflation higher, but markets are unlikely to be impressed.
2. US CB Consumer Confidence: Tuesday, 14:00. The Conference Board’s monthly survey of consumers has dropped from the highs and stands at 121.5 as of June. The fresh figure for August will likely show a rise to 125.2, in line with recent upbeat jobs numbers.
3. Australian inflation: Wednesday, 1:30. Australia releases inflation data only once per quarter – making every publication more meaningful for the Aussie dollar. Headline Consumer Price Index remained flat in the first quarter and is predicted to jump by 0.5% in the second one. Trimmed Mean CPI (or core CPI) carries expectations for an increase of 0.4% after 0.3% beforehand.
4. Euro-zone inflation: Wednesday, 9:00. How large will the ECB’s September stimulus package be? Inflation developments may make a difference. The flash figures for July are forecast to show a moderation – 1% after 1.2% beforehand. A slowdown is due also for Core CPI, which refuses to rise. A level of 1% is now on the cards after 1.1% in June.
5. US ADP Non-Farm Payrolls: Wednesday, 12:15. America’s largest payroll provider publishes its jobs report for the private sector two days before the official BLS release. While the numbers are not always well-correlated, ADP’s NFP moves markets. After a disappointing increase of 102K positions in June, an increase of 150K is on the cards for July.
6. Canadian GDP: Wednesday, 12:30. Canada publishes Gross Domestic Product figures every month, providing fresh insights. The economy grew by a satisfactory 0.3% in April and upbeat growth has likely extended into May despite global uncertainty.
7. Fed decision: Wednesday, 18:00. The Federal Reserve is set to cut its benchmark interest rate for the first time since the crisis. Persistent weaker inflation and trade tensions are behind the move that comes despite upbeat GDP and employment figures. Markets have recently reduced expectations to just one single cut and then a long pause – not a long loosening cycle that they had originally foreseen. A 25 basis point interest rate cut is priced in but the Fed may still surprise by a 50bp slash or no cut at all. Assuming a regular reduction of 25bp, the focus is set to shift to the accompanying statement and Chair Jerome Powell’s press conference – conveying a message about future moves. If Powell is upbeat, the dollar has room to rise. If he is downbeat about the economy and opens the door to more cuts – there is room to the downside for the dollar.
8. Chinese Caixin Manufacturing PMI: Thursday, 1:45. This independent forward-looking survey is considered a reliable barometer for the direction of the world’s second-largest economy. It has been below 50 – the threshold separating expansion and contraction – in the past few months. A minor drop from 49.6 to 49.4 points is forecast. China’s economy has suffered from US tariffs. Any significant fall may boost the safe-haven USD and JPY.
9. UK rate decision: Thursday, 11:00, press conference at 11:30. This is a “Super Thursday” event by the Bank of England. The BOE not only releases its rate decision and meeting minutes but also publishes its Quarterly Inflation Report (QIR) and holds a press conference led by Governor Mark Carney. The BOE has been assuming a smooth Brexit and has expressed its desire to raise rates amid a bustling economy and especially a booming labor market. This may all change now. The new Johnson government seems keen on a hard Brexit. Moreover, central banks all over the world have been removing their hawkish biases, signaling rate cuts, or slashing rates outright. The UK decision comes less than 24 hours after the Fed, and Carney and co. are likely to follow by removing their intention to raise rates. Nevertheless, the pound has already been suffering and may bounce on a “buy the rumor, sell the fact” response.
10. US ISM Manufacturing PMI: Thursday, 14:00. The forward-looking indicator has been on the back foot of late but remains above 50 – indicating ongoing growth in the manufacturing sector. A minor advance from 51.7 to 52 points is on the cards for July’s report – partly driven by the resumption of trade talks between the US and China. The index also serves as a hint toward Friday’s Non-Farm Payrolls.
11. US Non-Farm Payrolls: Friday, 12:30. After the dust will have settled from the Fed decision, another top-tier event awaits markets – the US jobs report for July. The labor market has made a comeback in June with an increase of 224K positions. A more moderate increase of 160K is on the cards now and wages – often stealing the show – carry expectations for a rise of 0.2% month over month. The data is set to rock all markets and feeds into the next Fed decision.

*All times are GMT

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Further reading:

• EUR/USD forecast – for everything related to the euro.
• GBP/USD forecast – Pound/dollar analysis
• USD/JPY forecast – the outlook for dollar/yen
• AUD/USD forecast – projections for the Aussie dollar.
• USD/CAD forecast – Canadian dollar predictions

Safe trading!