Market predictions and forex forecasts for the week of 26 July 2021.

Weekly market assessment for the week ahead

Week starting 26-07-2021

 

USD

  • The USD pulled back from a remarkable rally over the past two weeks. We are currently sitting in the middle of the past month’s range, with the market waiting on further data. 
  • It’s a big week on the data front, with the main event being the US Fed interest rate decision on Wednesday. The consensus is that nothing will change and that the interest rate will remain at 0.25%. This together with the press conference will keep the market busy. 
  • The QoQ US GDP growth figures is expected to increase from 6.4% to 8.6%. If this does occur, it should be USD positive, meaning the economy is expanding. 

EUR

  • The Euro gained significant ground during the early parts of last week. The EUR/GBP broke 0.865 on Tuesday before heading back to 0.860 at which it closed on Wednesday. We then saw the currency lose some ground again for the rest of the week, closing at 0.8756 on Friday against the GBP. 
  • Movements were mainly driven by the resurgence of Covid-19 (specifically the Delta variant) and the subsequent reintroduction of social restrictions in some EEA countries. This has increased risk aversion amongst investors. Thereby propping up the currency for most of the week.
  • Investors were eagerly watching signals from the ECB ahead of their policy statements and interest rate announcements on Thursday. The ECB more or less met expectations of a dovish stance on Thursday by reiterating their commitment to the PEPP and 0% interest rates. They also indicated that the central bank will be keeping interest rates lower for longer in order to boost inflation rates. Their policy statement was not without controversy. The European stimulus package (mainly the size) became a source of debate as some countries would want to see it decrease (due mainly to their own inflation rate targets). This overall dovish stance continues to place a cap on Euro strength. 

GBP

  • The Pound started the week on the back foot. Risk-off sentiment saw the Pound weakening against the Euro, US Dollar and Canadian Dollar, before finishing the week fairly flat. GBP/CAD closed the week 0.38% lower, while GBP/USD depreciated by a marginal 0.02%.
  • The Sterling gained some ground against developing market currencies, such as the Rand and both the Kiwi and Aussie Dollars. GBP/AUD appreciated by 0.34%, while GBP/NZD moved 0.26% higher.
  • Retail sales data was released for the month of June. Retail sales edged slightly higher, by 0.5%, after the 1.3% month-on-month decline in May. 
  • The GFK consumer confidence moved up -7 for the month of July, after the reading stood at -9 in June. 
  • Services PMI came in at 57.8 for July, after the 62.4 reading in June. Manufacturing PMI also fell, from 63.9 in the prior month to 60.4 for July. 
  • This week will be rather light on the data front in the UK. Looking into next month, we have the Bank of England (BoE) interest rate decision on 5 August. This should provide further valuable insight into the BoE’s stance on monetary policy and the timeline for tapering of bond purchases. 

ZAR

  • The week kicked off with a major risk-off sentiment as the Rand weakens across the board against major currencies. Currently trading at 20.50 GBP/ZAR and 14.90 USD/ZAR. 
  • On Monday morning it moved 0.8% as the country moved down to level 3 lockdown.
  • Broader sentiment appears somewhat mixed as the market turns wary of risk exposure ahead of the upcoming Fed update, meaning scope for major trends may be limited at the start of the week.

AUD

  • Last week, the Reserve Bank of Australia released their meeting minutes, which provided further insight into the views of Australia’s central bank. The RBA kept their cash rate unchanged, at 0.1%, as was widely anticipated by markets. Furthermore, the yield curve control programme remained unchanged. Interestingly, while the RBA has committed to extending their bond-buying programme until November, the minutes indicated that the RBA intends to reduce their purchases, from AUD5 billion to AUD4 billion.
  • Retail sales declined by 1.8% in June, after the 0.4% rise in May. Services PMI also moved decreased in July, coming in at 56.8.
  • This week sees the release of Australia’s inflation rate for Q2 of 2021, which is forecast to increase by 1% quarter-on-quarter, thus exceeding Q1’s inflation figure of 0.6%. Any further inflation could put additional pressure on the Aussie Dollar.
  • Final figures for manufacturing PMI will also come due for July, after the previous month’s reading of 58.6.

NZD

  • The Kiwi Dollar experienced its fourth consecutive week of weakness against the greenback last week.
  • New Zealand’s balance of trade pertaining to June was released in the early hours of this morning and resulted in a drop in their trade surplus with exports exceeding imports by NZ$261M. This is well below the NZ$500M forecast.
  • The ANZ business confidence for July is expected to be released on Thursday. The business confidence is forecast to increase to 1.2 from Junes -0.6.

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