Week Ahead:  Strong NFP keeps USD at 20 year high– CPI Up Next

Weekly Recap

We saw some major developments in the market this week. The headline move was the latest breakout from the US Dollar, with the Dollar index breaking out to its highest level in 20 years. For forex traders this manifested in EURUSD slumping to new 20-year lows.

Adjoining recessionary concerns appear to be further fuelling upside in USD via safe-haven demand.

The release of FOMC meeting minutes on Wednesday saw the Fed sticking to its hawkish outlook, signalling the need to push on with tightening in order to stop spiralling inflation. Additionally, discussions around growth concerns were light with Fed members downplaying recessionary risks. These comments were echoed later in the week by Fed’s Waller and Bullard who both called on the Fed to push on with tightening. 

The ECB minutes this week were also firmly hawkish. The central bank was seen marking concern over the path of inflation with several members calling on the need to tighten at a faster pace. With inflation surging, key ECB members were pushing for a front-loading of rates, therefore raising hawkish risks into the July ECB meeting. 

UK politics took a shocking turn this week as a sudden wave of high-level cabinet resignations resulted in UK PM Boris Johnson tendering his resignation. The events were the culmination of a long line of scandals and disgraces for the PM. The leading conservative party will now undergo a leadership contest to replace Johnson. GBP was actually seen higher in response to the news, likely a signal that markets hope a new leader can restore some unity and order to the UK government. 

In terms of market action, gold and silver broke to fresh 2022 lows in response to the stronger US Dollar. USD and CHF were the strongest currencies on the week, while EUR and JPY were the weakest. Despite USD strength, risk sentiment rebounded across the week, weighing on JPY while oil prices were also seen bouncing off the lows, though ultimately still ending the week lower following heavy losses earlier in the week. On Friday, a much stronger than expected set of NFP’s helped ward off recessionary fears, allowing equities to continue higher into the end of the week. 

Coming Up This Week

  • NZD RBNZ Rate decision

The RBNZ rate decision will be closely watched next week.  On the back of the recent 50bps hike from the bank, the market is looking for a further increase in rates this time around as the RBNZ continues to battle inflation. Looking ahead, traders will be keen to glean any signals as to how the bank is likely to manage rates over the remainder of the year. With global recessionary fears creeping higher, traders are anticipating a slow-down in central bank tightening through Q3/Q4. If the RBNZ points to the likelihood of slower tightening or sounds the alarm over recession fears, this will likely weigh on NZD near-term. 

  • USD US CPI

On the back of June’s stronger-than-expected NFP result, expectations ahead of the July FOMC meeting are firmly hawkish. With that in mind, traders now look to the latest set of CPI figures this week for final confirmation. If inflation is seen rising again over the last month, a larger 75bps hike is all but guaranteed. However, if there is any downside surprise, this might muddy the waters, raising the risks of a lower 50bps hike. 

  • CAD BOC Rate decision

Much as with the RBNZ, the market is primed for a further hike this week. However, with a rate hike already baked in, the focus will instead be on forward guidance and the bank’s outlook for rates over the remainder of the year. Traders will be paying particular attention to any language around recession risks which might weigh on CAD if the bank is seen overly concerned. 

Forex Heat Map 

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Technical Analysis

Our favourite technical chart of the week – XAUUSD (GOLD)

The breakdown in gold prices this week saw price moving below the bullish trend line from 2021 lows and below the last key support at the 1760.24 level. Price is now moving in a clear bear channel from YTD highs and, while within the channel, the 1670 level is the next objective for bears. 

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Economic Calendar

Plenty to keep an eye on this week data-wise, with the RBNZ and BOC rate decisions, along with US CPI all due alongside a host of other events. See the calendar below for the full schedule. 

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Disclaimer: This article is not investment advice or an investment recommendation and should not be considered as such. The information above is not an invitation to trade and it does not guarantee or predict future performance. The investor is solely responsible for the risk of their decisions. The analysis and commentary presented do not include any consideration of your personal investment objectives, financial circumstances, or needs.

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