FX Week Ahead 28 June – 2 July 2021 / Chinese Yuan Detailed Preview

Key points

• The markets will be fairly busy in the week ahead, but most parts of the markets are quiet
• The attention will be on the US nonfarm payrolls and unemployment, and the RBA meeting minutes
• The markets will continue to assess growing concerns of inflation and rates hike
• Technical outlook US dollar / Chinese yuan

Monday

The markets are quiet on Monday with no economic events in the markets that could influence the market volatility.

The start of the week will be dominated by headlines of inflation talks, rates hike and what to expect from the jobs report in the US. The Global equities are expected to be volatile as the focus shift to the end of Q2 and the end of June.

Tuesday

The markets are quiet on Tuesday and the second day of the week ahead of the U.S jobs report, the most anticipated news in the markets.

The European markets will focus on Germany’s harmonized index of Consumer Index and could potentially influence the movement of the Euro. EURUSD has been consolidating throughout the last with, failing to find direction despite Powell testimony and Fed speakers giving their views on inflation.

OPEC + is scheduled to hold a meeting on July 1 to discuss how to address production policy starting in August. In view of the market’s recent strength, the group’s expectations of increasing the offer will be increasingly higher.

As oil prices remain strong and Brent crude oil is currently trading at more than US$75 per barrel, OPEC+ will be under increasing pressure to further reduce production cuts when it meets on July 1. The pressure may not only come from within the group, but as countries appear on the other side of the Covid19 blockade, major consumers will increasingly call for cooling the market. India has made it clear in recent months that it hopes OPEC+ will increase its supply. In the same week, the Minister of Oil of India held a meeting with the Secretary-General of OPEC. He asked the organization to increase production because the high oil price increased India’s inflationary pressure.

We continue to believe that the average price of ICE Brent crude oil in the second half of this year is US$70/barrel, OPEC+ still has a large amount of idle capacity, and if/when the price rises, there is a risk that Iran’s supply will increase and the US sanctions will be lifted. However, the opinion assumes that OPEC+ will return this capacity to the market in increments of at least 500Mbbls/d per month. Any lower value may increase the possibility of price increases.

Wednesday

The markets will be busy on Wednesday as the market looks up to the economic events. The jobs report in the US and U.K GDP data will be key in the markets.

The markets will be busy during the Asian session as China reports its manufacturing PMI data and sets the USDCNH (US dollar / Chinese yuan). We expect the data to show a slight drop from last month due to renewed lockdowns, weak commodity prices, and decreased export volume. The USDCNH (US dollar / Chinese yuan) will look out for the data after retreating from 6.49.

The U.K GDP figures will draw attention in the markets, and pound traders will be eyeing better than expected data despite a resurge in Covid-19 cases, which has disrupted the reopening of the economy plan. The Central Bank has already sent a dovish decision, signalling no plans to tighten the interest rate even when the inflation is running hotter than expected. GDP is expected to show another slight jump as the U.K economy reopens despite being slow. A better than expected will lift up the pound.

Investors will eye what the consumer price index says about the condition of the Eurozone. The focus will then shift to the inflation data out of Eurozone. We expect the data to show that inflation continues to climb despite the Eurozone not signalling any rate increase yet. A high than expected data will cause volatility to the European markets.

The US markets focus will be on the ADP employment change figures and could be eyed by investors ahead of the unemployment data. Last month the data showed that the private sector added 978K jobs, and market expectations that 450K jobs have been added in June. A higher than expected data will be eyed by the bulls.

Thursday

The markets will be fairly busy the Australia balance of trade and US manufacturing PMI in focus.

The Australian balance of trade data will be the first key data for the day. The Aussie looking to bounce against the US dollar, a better than expected figures in the week ahead will push the Aussie for further gains before the US jobs data weigh on the market movement. The bulls will be eyeing for a further move up on AUDUSD after getting back above $0.75400.

The US markets will focus on the ISM manufacturing data and initial weekly jobless claims for catalyst. Jobless have been disappointed, and investors are becoming worried as the new wave forces some of the states to reintroduce lockdowns. Investors will be eyeing better than expected data on both ends.

Friday

The markets will be busy to close up the week, despite the Germany retail sales data, aiming to set the tone for the Euro markets and Dax indices. The main focus for the day will be on the US jobs report.

The number of non-farm jobs in the United States in May was lower than expected but indicated that the labour market in the United States has improved. The number of non-farm jobs increased by 599,000 in May, and a Bloomberg survey shows that economists expect 655,000 jobs to be created that month.

The US Bureau of Labor Statistics also revealed that the unemployment rate in the United States fell between 0.3% and 5.8% in May and that employment in leisure and hotels, public and private education and health and social assistance has increased significantly.

The market expects that June data to show that Nonfarm payroll jobs grew by 600K, slightly up from the May figures, and unemployment is projected to show that it fell by 5.75 from 5.8%.

Technical analysis

USDCNH outlook

The USDCNH (US dollar/ Chinese yuan) has been on a downside trend since 01 April 2021. The fall saw the pair plot lower lows and lower highs as the dollar struggled to gain against most currencies.

The pair form a retest at 6.35, marking the area as a major rejection zone, and since then, the dollar bounced back since the beginning of June, resulting in the pair gaining as much as 1.26% in June.

With the jobs data in the week ahead, the dollar could look to bounce back from Friday sell-off.

Technically, the market look set to form an upside trend which could plot higher highs and higher lows. Currently, the USDCNH (US dollar / Chinese yuan) is looking to test the support level at 6.44, and failure to break below the zone could set a good tone for the bulls.