FX Week Ahead: Fed’s high liquidity stance remain firmly in place for the summer
USD: Fed unlikely to reverse course at this week’s FOMC meeting
Spot
DXY90.49
Week ahead bias
Mildly Bearish
Weekly range
89.60 – 90.50
1 month target
89.00
This week’s highlight will be the Wednesday’s FOMC meeting. Markets go into this meeting with a conviction that the Fed’s lower for longer and high liquidity stance remain firmly in place for at least the summer. That said, most analysts expect further declines in FX volatility over the coming months. While last week’s blockbuster CPI report was much higher than consensus, Powell and the Fed are unlikely to suggest any moves that could unsettle markets.
Data wise, this week’s highlights will be retail sales and industrial production. Both data points are unlikely to affect markets. Put together, it seems that we’re entering the summer doldrums with limited volatility and rangebound trade.
CAD: The Canadian economy seems to be scorching hot!
Spot
USD/CAD1.2120
Week ahead bias
Mildly Bearish
Weekly range
1.2000 – 1.2150
1 month target
1.2000
As expected, the BoC remained very quiet last week leaving the current policy unchanged. Markets are expecting the BoC to pull the trigger during it’s July meeting and open the door for another $1bn per-week tapering, allowing the CAD to further gain against the greenback and trade well below 1.20 for the remainder of the year.
This week we see the May CPI report for Canada. Expect headline CPI to have risen to 3.8% (a significant reading considering the restrictions). Most expect the CPI reading to add further fuel to the fire for the CAD possibly allowing the USD/CAD pair to breach the psychological 1.20 level.
EUR: Liquidity, liquidity, liquidity…
Spot
EUR/USD1.2110
Week ahead bias
Mildly Bullish
Weekly range
1.2075 -1.2210
1 month target
1.2300
Last week the EUR closed out the week on a high note against the greenback. Most analysts expect the euro to begin gaining against the USD over the coming weeks. Market consensus suggests that the USD is likely to lose out, perhaps even to the 1.25 area.
This week’s calendar is very light data wise. There is limited data out of Europe and traders are likely to focus more on the US-EU summit and the global tax deal. A benign Fed outcome on Wednesday is likely to spark the EUR/USD higher in the coming weeks.
GBP: GBP/USD to gain strength despite postponing reopening of the economy
Spot
GBP/USD1.4160
Week ahead bias
Mildly Bullish
Weekly range
1.4010 – 1.4380
1 month target
1.4400
With the Fed unlikely to reverse the soft USD environment, the GBP/USD should remain supported over the coming days. Domestically, it is becoming clearer that the June 21st restriction easing date is likely to be postponed but the delay will not have any major impact to the economy as the delay is likely to be only for a few weeks.
On the data front, this week will be busy for UK domestic releases. Wednesday we’ll se the May CPI release where most expect the reading to rise to 1.8%. UK (April) employment data should improve further, reflecting the reopening of the economy while May retail sales should come in stronger as well. Look for the GBP to gain against the USD this week.
Currency Chart
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