Potential hints at QE tapering in September would add further support to the dollar
USD: Fed speak will dominate the US calendar this week
Spot
DXY92.26
Week ahead bias
Mildly Bullish
Weekly range
91.30 – 92.85
1 month target
92.00
The greenback spiked against most currencies after last week’s hawkish Fed announcement. 7 of the 18 FOMC members felt a first rake hike could come as early as 2022. The US calendar is light in the week ahead, but there are several Federal Reserve speakers every day.
The highlight will be Fed Chair Powell’s testimony to Congress on Tuesday. It will be interesting to see whether the Fed is prepared to adopt any new language on tapering - potential hints at QE tapering in September would add further support to the dollar.
CAD: Will the CAD weaken any further or is the correction over?
Spot
USD/CAD1.2451
Week ahead bias
Neutral
Weekly range
1.2260 – 1.2430
1 month target
1.2200
The loonie got absolutely demolished this past week on the Fed’s hawkishness and the Chinese commodity intervention. USD/CAD spot move up to the 1.24’s and is likely to challenge the 1.25 level over the coming days. Yet it looks like the BoC will be well head of the Fed in tightening policy which is likely to provide some support over the coming weeks.
Canada’s calendar is very light this week – April retail sales are expected to fall 5% month-over-month but the data point is likely to be ignored given the lockdowns across most of the country. Look for the loonie to weaken over the coming days before reversing trend on the BoC’s hawkish stance vis-à-vis the Fed.
EUR: The ECB will likely distance itself from any tapering rhetoric
Spot
EUR/USD18.64
Week ahead bias
Mildly Bearish
Weekly range
18.35 – 19.80
1 month target
1.2000
The EUR/USD was hit hard last week after the Fed’s hawkish statements. Most feel that continued Fed speak over the coming days will impact the EUR/USD and correct lower. Markets will be eager to hear speeches from ECB president Lagrade who will likely distance the central bank from any rhetoric on any further tapering or rate increases.
In terms of the data calendar, focus will be on the flash June PMIs and German ifo. This past week the ifo institute cut their 2021 German GDP forecast from 3.7% to 3.3% on account of supply bottlenecks. It will be interesting to see if manufacturing sentiment sours in the June surveys.
GBP: Near term risks are likely point to a lower GBP
Spot
GBP/USD1.3814
Week ahead bias
Mildly Bearish
Weekly range
1.3710 – 1.4050
1 month target
1.4100
The next few weeks are likely to be tricky for the GBP. Following the hawkish June FOMC meeting last week, there remains downside risk for the GBP/USD over the coming weeks. Second, concerns about the spreading delta variant should prevent the markets from pricing in any economic surge related to reopening of the economy which is also likely to weigh on the GBP in the short term.
Data wise it will be a busy week. Most don’t expect any surprises from the BoE meeting (Thursday) with the Bank unlikely to discuss timing of a first-rate hike. June PMIs (Wednesday) are likely to increase slightly though manufacturing PMIs are likely to reverse lower after last months significant rise. Put together upcoming data releases nor the BoE announcement are likely to impact the trajectory of the GBP over the coming week.
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