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Market predictions and forex forecasts for the week of 2 August 2021.
Week starting 03-08-2021
- Over the past week we have seen the USD weaken quite drastically from the strength we have seen recently. The Dollar moved from the peak at 1.358 against the GBP to just below the phycological 1.40 level.
- The movement we have seen came after the Fed policy meeting and disappointing growth data from the US. This coupled with an increase in Covid cases linked to the Delta variant has unnerved the market.
- On the horizon this week we have the crucial nonfarm payrolls data on Friday. If this shows improvement in US employment growth, we should see some positive moves in the USD.
- This week the Euro lost significant ground against the Pound and continued to display volatile price movements against most other majors. This comes as the European Central Bank (ECB) reiterated its dovish stance and as risk aversion returns to the markets.
- At last week’s press conference, the ECB highlighted its reasons for keeping interest rates and the PEPP unchanged. The main one being the resurgence of the Delta variant. ECB president Christine Lagarde has stated that there is a real risk of tapering too soon as economic recovery may be offset by a return of lockdown measures due to new Covid variants.
- We also saw the return of risk aversion. This in turn capped emerging market currency growth and spiked volatility against the EUR for safe haven currencies such as the JPY and CHF. Further movement on the EUR was also driven by GDP and inflation data released on Friday. Positive GDP data boosted the currency, while inflation remained below the ECB target.
- Last week was rather light on data coming out of the UK.
- This week, we have the Bank of England’s interest rate decision, along with further details of the quantitative easing programme. The Bank of England voted unanimously to keep its benchmark interest rate on hold at a record low of 0.1 percent during its June 2021 meeting, and by a majority of 8-1 to leave its bond-buying programme unchanged as widely expected. This month, the cash rate is expected to remain at the ultra-low level of 0.1%.
- 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.
- Manufacturing and services PMI are both due to be released and are expected to fall after the respective readings of 63.9 and 62.4 in June.
- Last week saw the Rand weaken against major currencies as the country struggles with the third wave and Covid restrictions. Recent unrest in the country also put further pressure on the economy.
- A slight pullback to the support level at 20 against the Pound could see the Rand weaken further, especially with the nonfarm payroll data coming out of the US on Friday.
- Emerging market currencies like the Rand thrive on US rates staying low because they benefit from the interest rate differential that increases their appeal for carry trade, in which investors borrow in a low-yielding currency to invest in higher-yielding assets.
- Last week in Australia, inflation came in at 3.8% (YoY) for the second quarter of 2021. Inflation pressure was driven by rising prices in transport, food, alcohol and tobacco. Compared with the previous month, the Australian consumer price index increased 0.80%, during the month of June and the producer price index rose by 0.7% in Q2 2021, after a 0.4% growth in Q1.
- Manufacturing PMI came in at 56.9,after the previous reading of 58.6.
- This week, we kick off with the Reserve Bank of Australia’s interest rate decision, which is expected to remain at 0.1%. This comes after the central bank reaffirmed its commitment to achieving full employment in the previous meeting.
- Australia’s balance of trade for June will come due this week. The country’s trade surplus is expected to narrow towards AUD 8 billion, after the reading of AUD 9.681 billion in May.
- Retail sales are also scheduled to be released, and are expected to decline 1% after the month-on- month growth of 0.4% in May.
- The ANZ Business Index dropped to -3.8 in July, this is well below the 1.2 forecast.
- The drop in business confidence is likely due to the disruptions in the shipping schedule as well as intense inflation pressures.
- We can expect the release of employment figures tomorrow morning. Unemployment for the second quarter is expected to remain steady at 4.6% from the previous quarter’s 4.7%.
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