FX Week Ahead: Strong payrolls clearly argue in favor of USD strength
USD: Strong payrolls likely to support the greenback
Spot
DXY92.25
Week ahead bias
Mildly Bullish
Weekly range
92.00 – 93.00
1 month target
92.50
The greenback enjoyed a strong start to July after the better-than-expected June nonfarm payroll release. While the unemployment rate ticked up a little higher, the jobs gains suggests that the economy is recovering and is likely to keep the Fed on target toward a 2022 interest rate hike.
This week is likely to be a quiet given the holiday shortened week. The calendar is very light with the exception of the FOMC minutes which will be released on Wednesday. The markets will be interested in hearing on how the members view the possibility for a rate hike in 2022. Globally, the markets will be watching for data releases from China on the Caixin PMI readings (Wednesday) and inflation readings (Friday).
CAD: All signs pointing to another rise for the loonie
Spot
USD/CAD1.2372
Week ahead bias
Neutral
Weekly range
1.2260 – 1.2430
1 month target
1.2200
Similar to other commodity currencies, the combination of Fed hawkishness and Chinese commodity intervention has taken a toll on the Loonie. Despite these external factors, it looks like the Bank of Canada will be well ahead of the Fed in tightening policy and its beginning to look like the market is ready to reposition its forecasts toward a much stronger CAD in the coming weeks.
Data wise this week’s calendar is light with just April retail sales which are expected to fall 5% month over month given the lockdown earlier this year. Markets are likely to ignore backward looking data and as a result should not affect the currency. Also this week we see the he June release for the CFIB business barometer – which may well retest the highs at 68.2.
EUR: Common currency needs some wins on hard data releases
Spot
EUR/USD1.1837
Week ahead bias
Mildly Bearish
Weekly range
1.1740 – 1.1900
1 month target
1.1900
The EUR/USD remains of thin ice and the better-than-expected NFP headline is likely to keep the currency pair under pressure with a possibility of a drop toward the 1.1700 level. The FOMC minutes on Wednesday will be a key driver to the trajectory of the currency in the short term.
The European calendar is also very light this week the focus more on investor surveys that hard data. This week we’ll see the Sentix, ZEW and European Commission’s summer forecast – which should all point to growth upgrades. That said, Germany will post May industrial production on Wednesday which should rebound in line with the various surveys. The euro will need some strong improvements in hard data to move out from its current trading range.
GBP: Markets remain unfazed by the delta variant spike
Spot
GBP/USD1.3777
Week ahead bias
Neutral
Weekly range
1.3700 – 1.3850
1 month target
1.4100
The pound had an interesting past week with the temporary delay in escalating trade tensions with the EU. Though the escalation in trade tensions have calmed, there remains strong political divergences and a risk of further escalations are set to resume later this year. Domestically, the BoE warned against market overreactions to “temporary” inflation pressures which resulted in repricing of interest hikes and expectations.
The GBP has held its own against the greenback’s appreciation trend over the last few weeks. The week ahead should not have any material impact to the direction of the GBP with the main drivers being another speech by Andrew Bailey. As long as the UK government does not suggest that the rise in covid cases will postpone the reopening further, the GBP should remain a bid this week.
Currency Chart
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