Delta variant virus fears and worsening Oil demand in focus
US dollar: Weekly Trading Range (92.70 - 93.50)
Week ahead bias
92.70 – 93.40
The US dollar ended the week on a high note supported by rising US rates and rising Delta variant cases. Driving US rates has been Fed communication with the coming Wednesday seeing the release of the July 28thFOMC meeting. Markets are betting that the Fed is likely to begin discussing tapering in more detail at the t the Fed Jackson Hole symposium starting 26 August and possibly formally announcing as early as the 22 September FOMC meeting.
In addition to the FOMC minutes, we’ll also get to see July US retail sales, Industrial Production and Housing Starts. Confidence in the US recovery comes at a time when virus fears are spreading in Asia. Concerns over the spread of the Delta variant in Asia have also led to a re-rating of Chinese growth prospects providing broad support to the dollar.
Canadian Dollar: Weekly Trading Range (1.2470 – 1.2570)
Week ahead bias
1.2470 – 1.2570
Oil prices didn’t do the Canadian dollar any favours last week when OPEC’s monthly report and the IEA signalled for a worsening demand into the year-end and possibly tilting toward an oil surplus in 2022. Despite the news, the CAD was rather resilient given the continued USD appreciation against most of the G10.
This week’s focus will be on July’s inflation data in Canada. Most don’t expect a large deviation from June’s 3.1 reads nor will it have any material impact on the trajectory of the loonie. The Bank of Canada seems steadfast to end its asset purchase programme by the end of the year which is likely to keep the loonie rangebound over the short/medium term. USD/CAD could explore the sub-1.2500 level this week especially if oil prices continue to remain resilient.
Euro: Weekly Trading Range (1.1675 – 1.1800)
Week ahead bias
1.1675 – 1.1800
EUR/USD continued to remain under pressure this past week. Central bank policies of the Fed and ECB are pointed in two different directions with the treasury-Bund differential set to head back to the March highs of 200bp. EUR/USD support at 1.1700 looks vulnerable to start the week.
The EUR/USD has enjoyed some very low levels of volatility as markets have a consensus view of a stronger dollar through to the end of the year. On the vaccination front, the EZ has done well with its vaccination rollout suggesting that its economy may be better able to resist the rising Delta variant spread. In terms of data, we’ll get to see the first revision of the Eurozone 2Q GDP figure, and also the final July CPI readings. Like this past week, the story for this week is whether EUR/USD can survive at 1.1700.
British Pound: Weekly Trading Range (1.3770 – 1.3900)
Week ahead bias
1.3770 – 1.3900
The GBP weakened across the board on Friday despite posting strong growth data for Q2. The GBP sentiment seems to have soured over the past week as markets have questioned the Bank of England’s optimistic outlook given the recent virus wave that has seen case numbers begin to skyrocket.
This week’s data calendar is action-packed in the UK. July’s jobs number on Tuesday is likely to show a lower unemployment rate given the re-opening of the economy. Inflation data on Wednesday is likely to print lower but should not have a long-lived market impact as the BoE isn’t focused on near-term inflation dynamics. Finally, retail sales could decline in July with the impact of the Delta variant. Overall, all signs point toward a rangebound trading range over the coming week.
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