FX Week Ahead: The US dollar should continue its recent gains against most of the G10
USD Dollar: Weekly Trading Range (91.40 – 92.50)
Spot
DXY91.88
Week ahead bias
Neutral
Weekly range
91.40 – 92.50
1 month target
93.00
This past week’s USD moves were unexpected to say the least. After a week where the Fed made another step towards tapering and the Chinese government’s regulatory clampdown generated a risk-off wave that spread across Asian and global markets, one would expect to see a stronger dollar across the board. In fact, the dollar is on track to have the worst week of 2021, as it lost ground against all G10 currencies.
In the week ahead, some key data for July will tell us at what pace the US economy has continued to recover -expect the ISM surveys to keep reporting strong demand. The other main release, the July jobs report, should see employment gains at around 900k should underpin the notion that the labour market is on a solid recovery path. On balance, next week’s dataflow should allow markets to cement their Fed tapering expectations. It is too early to call for the end of the dollar’s recent good momentum and most analysts expect the greenback to find at least a fairly solid floor in the week ahead.
Canadian Dollar: Weekly Trading Range (1.2350 – 1.2560)
Spot
USD/CAD1.2442
Week ahead bias
Neutral
Weekly range
1.2350 – 1.2560
1 month target
1.2400
The loonie was supported this past week by a weak USD and soaring oil prices. The USD/CAD moved back below 1.2500 after having spiked to 1.2750 briefly this past week. This week’s highlight will be Canadian job figures for July scheduled for release on Friday. The Canadian jobs data print should remain supportive, ultimately cementing the market view the Bank of Canada will ultimately reduce asset purchases over the coming months.
Market analysts continue to suggest that there is a strong possibility that the BoC will end its QE program by the end of the year and see a risk of a first-rate hike in the first half of 2022. For the coming week, the USD strength is likely to continue to dominate the markets, but the CAD should fare well against most of its peers.
Euro: Weekly Trading Range (1.1770 – 1.2000)
Spot
EUR/USD1.1890
Week ahead bias
Neutral
Weekly range
1.1770 – 1.2000
1 month target
1.1800
The cautious Fed last week coupled with USD softness allowed the EUR/USD to rise to the 1.1900 level last week. Despite the Fed’s cautious tone, most expect the Fed is still likely to adjust policy well ahead of the ECB which is likely to maintain ultra-accommodative policies in the medium term. Given that there isn’t any major market moving data in the EZ, EUR/USD upside remains limited.
Domestically this will be a quiet week for the EZ on the data front. Retail sales (Wednesday) won’t have much effect on the trajectory of the euro.
British Pound: Weekly Trading Range (1.3800 – 1.4100)
Spot
GBP/USD1.3970
Week ahead bias
Neutral
Weekly range
1.3800 -1.4100
1 month target
1.4000
The entire focus of this week for the GBP will be on Thursday’s BoE meeting. Most don’t expect this to be a market moving event. The bank is expected to repeat prior language that “significant progress” is needed prior to any stimulus being removed. With the bank’s guidance expected to remain neutral, the impact to the GBP should be limited.
With the greenback stabilizing somewhat and the GBP/USD should pick up some steam and possibly test the 1.4000 level. There isn’t much in the way of UK specific news, so any major moves are likely to come from broader global market themes.
Currency Chart
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