FX Week Ahead 26-30 July 2021 / Fed Interest Rate Frenzy

Table of Content

Key points

  • The markets will be relatively busy in the week ahead
  • The Fed interest rate, CPI data from Australia and Canada
  • The earnings season continue with FAANG
  • Technical outlook

Monday

The markets will be fairly quiet on Monday to start the week as the markets participate in the last week of the month movement. Global equities tend to trade higher during the week of the month, but this time around, the heavy tech earnings will be the centre focus of the movement of the markets.

On Monday, Tesla is expected to release its earnings report after the closing bell. Tesla’s second-quarter earnings report is highly anticipated, especially since the company announced record numbers in the second quarter, despite the negative impact of global chip shortages and other unfavourable factors on the global automotive industry. We expect TSLA adjusted earnings per share to be US$0.96, higher than the US$0.44 in the same period last year. Revenue is expected to be 11.21 billion U.S. dollars, an increase of 85.8% over a year ago.

Tuesday

The U.S markets will be busy as the economic calendar features the Durable goods and Nondefense Capital Goods orders. With the opening of the economy being the centre focus, the markets will be eyeing better than expected figures.

The US manufacturing industry has been performing well despite having a supply chain backlog. However, in June, the US manufacturing industry faced challenges that could affect the durable goods data results. After the figures jumped in May by 2.3%, the market expects the figures to come out at 2.1% in June. A better-than-expected data could help fuel further upside movement for the US.

The US non-defense capital goods orders will also be in focus, and the market expects the data to highlight a slight recovery.

The U.S tech giants will be busy on the earnings front as Alphabet Inc, Microsoft, and Apple are set to report their Q2 earnings. We expect the Q2 report for the big companies to come out better than expected, with most companies already showing signs that Q2 was a better season.

Wednesday

The markets will be much busy as the Fed interest rate is in focus, the consumer price index for Australia and Canada takes the centre focus.

The US Fed interest rate will be the centre for the day. Although the Fed is not expected to change its policy at the July meeting, we can hear more about the cutback discussion that began in June. Trading volume on this topic may appear at the Jackson Hole meeting in August, and the risk still tends to normalize the previous policy that the Fed is currently signalling.

The July FOMC meeting may not be an event in itself. We would not be surprised to hear Jerome Powell talk more about the discussions surrounding the fine-tuning path. We suspect that the upcoming Jackson Hole Fed interest rate meeting in late August will allow Fed officials to lay the groundwork for the gradual reduction of quantitative easing, which was elaborated in more detail at the September FOMC meeting before the official announcement in December. We expect QE purchases to end in the second quarter of 2022, so there will be a relatively rapid reduction.

The US dollar is close to a high for the year ahead of the FOMC meeting on Wednesday. Assuming the Fed continues to carry the contraction to September and the global growth environment remains mixed at best, we doubt the dollar can sustain its gains, if not slightly higher.

Inflation data will be the key focus for the Aussie and Loonie traders as the Reserve bank of Australia, and the Bank of Canada are set to report their CPI data. Although the data is expected not to change the policy outlook for both banks, it will surely influence the movement of the Aussie and the Loonie against the major peers.

 A better-than-expected figure on Wednesday could influence the Aussie against the major peers. Australia’s first-quarter consumer price index rose just 1.1% year-on-year but may be well above the Bank of Australia’s target limit of 3% in the second quarter. While this will certainly help provide a stronger justification for policymakers to end the quantitative easing program as soon as possible, the fact that a large area of ​​Australia has recently come under new lockdown means that the Reserve Bank Australia is more likely than ever to ignore inflation.

In Canada, the overall inflation rate has exceeded 3%, and the economic recovery is consolidating. Friday’s monthly GDP data should confirm this again. However, with the global trend of the virus and the recent worsening of oil prospects, even if domestic indicators continue to remain stable for now, it remains questionable whether the Bank of Canada will tend to accelerate the scale-down plan. Therefore, oil prices and risk sentiment may continue to be the main drivers of the Canadian dollar this summer.

McDonald’s, Facebook, and Pfizer will be the centre focus for the day on the earnings front. McDonald’s and Facebook are expected to be the leading companies set to report higher than expected earnings. Boeing could struggle in terms of revenue as the company faces challenges that have dropped its share price.

Thursday

Markets will be busy, especially in the US, as the market brace for GDP data and initial jobless claims just right after the FOMC meeting. The Euro will look out to Germany.

The US GDP data will be the key focus for the US dollar and the US equity markets as investors eye positive results to signal the economic recovery in America. The GDP will provide the economic outlook for Q2 – expected at 8.2% quarter-on-quarter annualized, higher than expected report could signal great recovery to the US economy The US initial jobless claims will take the centre focus after the previous data rose unexpectedly to 419,00 opening a room of uncertainty to the Fed ahead of the FOMC. In the week ahead, the market is projecting a decline of 365,000.

The Germany Harmonized index consumer price will be the key focus on the Euro front after the Germany30 index rose last week. The data could fuel further upside movement. A better than expected data could smoothly lift up the Euro.

On the earnings front, Amazon and Mastercard will report their earnings. Investors are eyeing positive results.

Friday

The market will be busy as the Eurozone inflation data takes the centre focus and Germany GDP data. The Eurozone CPI rose to 2.0/2.1% year-on-year, and it seems unlikely to affect the market. This happened after the European Central Bank’s policy review, which turned to a forward-looking direction. The European Central Bank will not consider raising interest rates until the CPI can sustainably remain at 2% within the 1218-month forecast range. Currently, the European Central Bank predicts that the CPI will remain at 1.4% in 2023.

Germany GDP data will attract the market attention as the market expects positive data.

Technical outlook

Due to increased demand for high-yield assets, the U.S. dollar closed higher against a basket of major currencies on Friday, closing higher for the second consecutive week. This move was supported by the strong rise on Wall Street, which helped investors regain confidence amid fears that the Delta coronavirus variant might undermine the global recovery.

The Dollar index has been on an upside movement within the rising wedge, and the market could be looking for a more bullish move. The FOMC will set the tone for the Dollar this week.

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Lulama Msungwa

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