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Market predictions and forex forecasts for the week of 11 July 2022.
Week starting 11-07-2022
We have excluded the Russian Ruble from the analysis in our report due to the extreme volatility associated with the currency.
- The US Dollar had another stellar performance last week, with the currency strengthening against 17 of the top 19 currencies we monitor. The most notable gains were against the Polish Złoty (PLN) (4.1%) and the Norwegian Krone (NOK) (3.8%), whilst the most notable losses were against the Brazilian Real (BRL) (-1.34%) and the Indian Rupee (INR) (-0.15%).
- The new narrative in the market is the possibility of recession. This has resulted in a flight to safety and risk-off behavior by the big market participants. It’s in times like these that the USD thrives, being the global reserve currency. In addition to this flight to safety, the US employment data, in the form of nonfarm payrolls, came in much higher than expected – which has resulted in the market pricing in a higher probability of a 75-basis-point (bps) rate hike in the next Fed meeting.
- The main event this week is the US inflation data which will be released on Wednesday. Inflation is expected to increase once again, which would add more pressure to the Fed to increase rates at a more rapid rate. On Friday, the US retail sales data for June will be released and is expected to increase. This would be USD positive, since it would show there still is spending power from the US consumer.
- The Euro’s woes have continued with the currency losing ground against 16 of the top 19 currencies we monitor. The most notable declines were against the BRL (-3.4%) and the USD (-2.60%), whilst the most significant increases were against the PLN (1.38%) and ZAR (1.01%).
- This is the lowest the EUR has been against the USD in 10 years, with many market participants seeing parity in sight. There was not much data to warrant this drop in the EUR, with the move most likely caused by uncertainty resulting from the war in Ukraine.
- This week, there will be minimal data from the Euro Area. It remains to be seen if Russia will cut off natural gas supplies to many EU nations and the effects this will have on the economy.
- The GBP had a mixed performance, with the currency strengthening against 10 of the top 19 pairs. The largest gains were against the PLN (3.15%) and the ZAR (2.76%), whilst the greatest losses were against the BRL (-2.35%) and the USD (-0.93%).
- Boris Johnson has resigned after an unprecedented number of party members quit in reaction to continued scandals surrounding Johnson. The GBP gained ground after the announcement as it signaled an end to the fiasco plaguing UK politics.
- This week, the focus is the race to find a new leader of the Conservative Party. There are multiple candidates that have already thrown their hats into the ring, so we shall see how it plays out. Various GDP data will be released from the UK this week. We will monitor to see if there will be growth or a contraction.
- The South African Rand’s weakness continued, with the currency losing ground against all but one of the 19 currencies we monitor. The one gain was against the PLN (0.35%) whilst the losses were generally in 2-4% range, with the most notable being against the BRL (-4.44%) and the USD (-3.58%).
- If the woes at Eskom weren’t enough, now the market has increased fears of a global recession – thus money flowed out of the emerging market economies to safe-havens such as the USD. One should not write off the ZAR, as this is mostly a global move and not fully to be blamed on the issues South Africa is facing.
- This week, the main point is the retail sales data which will be released on Wednesday. We hope to see a positive figure month-on-month, otherwise, it would be ZAR negative.
- The Australian Dollar had a solid performance, with the currency gaining ground against 14 of the 19 currencies we monitor. The AUD strengthened most significantly against the PLN (3.37%) and the ZAR (2.95%), whilst weakening most notably against the BRL (1.33%) and the INR (-0.83%).
- The large jump in the AUD came from the Reserve Bank of Australia raising interest rates to 1.35%. While this was expected, it pushed up the currency quite a bit.
- This week, the Australian consumer confidence will be released on Wednesday. It is slowly deteriorating as inflation is starting to hurt consumer budgets. The unemployment rate will then be released on Thursday and is expected to remain stable at 3.90%.
- The New Zealand Dollar also performed well last week, strengthening against 13 of the top 19 currencies. The most notable gains were against the PLN (3.45%) and the ZAR (3.04%), with the most impactful losses against the BRL (-1.95%) and the INR (-0.82%).
- There was no important data from New Zealand last week, with the market mostly mimicking the AUD, and prepping for the interest rate decision.
- This week, the Reserve Bank of New Zealand’s interest rate decision will be released on Wednesday, where they are expected to raise rates by 50bps. This is largely priced in, but should they be raised by a higher number than expected, the NZD should strengthen.
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