July has historically been considered a low-volatility month in global markets: this year, this notion may fall quite far from reality. It is hard to forecast a marked change of direction in the dollar - the week ahead sees two major releases in the US. The June FOMC minutes (Wednesday) may tilt the balance towards markets fully pricing in a 75bp rate hike at the end of this month, should there be some indication of a growing consensus at the June meeting. The US jobs report (Friday) should show some fairly strong employment gains (270k), but the risks of a below-consensus reading are non-negligible given the lingering lack of suitable workers available to fill the huge amount of job vacancies.
CAD - Canadian Dollar
Just like most other G10 FX, the CAD struggled to resist the latest bout of USD strength, while still faring much better than its commodity peers as resilient oil prices possibly helped somewhat. Amid a relatively light agenda today, the publication of the latest BoC Business Outlook Survey could evidence that record capacity constraints have persisted across the Canadian economy, although this may not even be needed to embolden the BoC to more forcefully tighten with a 75bp rate hike next week. The economy appears to remain on a stronger footing than most of its developed market peers, as Canada in particular benefits from a positive terms of trade shock. This would only come as a slow-burning support for the CAD which still relies more importantly on some stabilization in risk appetite to allow for an eventual rebound in H222.
EUR - Euro
Last week’s CPI jump in the eurozone had a contained impact on EUR/USD, highlighting the recent lack of sensitivity of the common currency to the inflation numbers as: a) markets are already pricing in 140bp of ECB tightening by year-end; b) global assets seem to be trading more in tandem with recession fears given that aggressive monetary tightening has been largely factored in. Recession fears now appear to be mostly linked to further developments in Russia-EU relations pertaining to gas flows, as fears of Russia halting or further reducing exports to Europe remain quite elevated. The data calendar is rather quiet this week in the eurozone. The pair runs a bigger risk of re-testing the 1.0380 May lows in the coming days rather than returning to the 1.0500-1.0600 area.
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