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Another Crucial Week Ahead With BoJ, GDP And Inflation Readings

Following better than expected US economics and a macro risk-on sentiment, the US Dollar turned buoyant with a fifth consecutive weekly rise by the greenback gauge (I.USDX). However, the same had its side-effects on EUR, JPY and some of the commodity currencies. The Euro and British Pound additionally needed to bear the burden of disappointing data-points and an unclear communication from ECB while improved risk appetite and speculation for further monetary easing from BoJ kept hurting the JPY. Further, RBNZ's dovish communication during surprise economic assessment and the RBA minutes hinted that these central bankers are also in the queue for monetary easing, which together with the dip in commodity prices, dragged the AUD, NZD and CAD towards south. Additionally, the Crude prices couldn't withstand strong USD and nearness to end of US summer driving season and the Gold also dipped for second consecutive week.

As we come towards the end-of-month week, some of the headline details/events, like EU, UK, US and Canadian GDP, and the monetary policy meetings by the US Federal Reserve and Bank of Japan (BoJ), are scheduled to enable the present volatile markets continue. Also, US Consumer Confidence and Durable Goods Orders, coupled with inflation readings from EU and Australia, are added data-points to offer another crucial week to market players.

US GDP & FOMC Statement Should Be Observed Closely
Recent US-favored market momentum rejuvenated some of the dead expectations for a Fed-rate hike in 2016, which could be well-witnessed in the US Dollar up-move. However, the Federal Reserve continues to remain normal, with the same approach of "Wait And Watch Headline Figures", that makes all the upcoming data-points and FOMC meetings even more important.

With the June employment report joining hands with upbeat Retail Sales, Housing numbers and Services details, USD traders are more inclined to observe the Advance reading of US Q2 2016 GDP, up for release on Friday, in order to force expectations of a Fed rate-hike in 2016. The consensus shows a three quarter high reading of 2.6% compared to 1.1% prior, which would cut the flow of previous four-quarter southward journey.

Another important event of the week, the monetary policy meeting of the FOMC, is scheduled for release on Wednesday. Even if the Federal Reserve isn't expected to alter its present monetary policy, the FOMC-statement would be closely examined to know whether the mood at the world's largest economy's central bank has changed or not. Recently, some of the leading policymakers were spotted favoring a rate-lift in 2016, while the risk from Brexit was also on the mouth of some policymakers, for which the clues will be checked in detail.

Other than these US headlines, monthly readings of CB Consumer Confidence, New & Pending Home Sales, Durable Goods Orders and Chicago PMI are additional data-points that could make USD traders on edge during the current week. While Tuesday's CB Consumer Confidence and Friday's Chicago PMI are both likely to print soft numbers, with 95.6 and 54.3 against 98.0 & 56.8 respective priors, Housing market details, namely New Home Sales and Pending Home Sales, up for Tuesday and Wednesday respectively, can continue pleasing the greenback buyers with 560K and 1.9% marks versus 551K and -3.7% numbers of past month. Further, the Durable Goods Orders, scheduled for Wednesday, may also cut its previous decline of -2.3% with -1.1% contraction and the Core reading can also help the USD up-move with +0.3% growth against -0.3% prior shrink.

Considering the slew of upbeat US economics, together with the Brexit risk, chances are higher that the Fed might again play with words, but may sound a bit hawkish, which together with welcome GDP print, can help the USD to extend its on-going up-move. However, a worried statement relating to UK cessation's impact on US growth, coupled with a surprise dip in GDP, could trigger the greenback's profit-booking session.

EU Inflation, GDP & UK GDP Are For EUR & GBP Traders To Watch

While on-going G20 continue focusing on Brexit and the EU-UK policymakers are also trying their hard to keep the EUR – GBP losses minimum, EU Flash CPI & Preliminary GDP figures for the EU & UK, are important data-points that could help forecast near-term trend of the EUR & the GBP.

Wednesday's UK Prelim GDP for Q2 2016 is likely to disappoint Pound bears with 0.5% growth-rate compared to 0.4% prior while EU Prelim GDP bears the consensus of plotting 0.3% growth-rate against 0.6% prior and the Flash CPI might reprint 0.1% mark during its Friday announcement. Additionally, German Prelim CPI on Thursday, might help the EUR to get ready for Friday's EU details as the inflation number from the EU's largest economy is likely to print 0.2% mark against 0.1% prior.

Off-late the UK economics have been disappointing and the same might happen with GDP, which in-turn could further drag the GBP towards south but a welcome reading, coupled with positive progress at G20 to solve the EU-UK deadlock, could enable the Pound to pare some of its recent losses. On the other hand, the EUR might continue witnessing downside should the growth figure matches forecast and force the ECB towards another mammoth monetary easing measure.

BoJ Will Be Crucial For JPY

Ever since the Shinzo Abe again won an upper house election of Japan, speculations have mounted that he would now not refrain from announcing "helicopter money", which in-turn provided a drag in the JPY's north-run. Hence, market players would closely examine the Friday's Inflation numbers and details of BoJ's monetary policy meeting, in order to forecast Japanese currency's upcoming moves.

The National Core CPI of Japan is expected to re-print -0.4% mark on Friday and can keep punishing the JPY while the Bank of Japan, even if largely expected to hint its upcoming monetary policy moves, is less likely to announce any monetary policy changes this time. Hence, given the Japanese central bank chooses to obey the recent style of ECB & BoE and ask for some more time to announce further monetary action, the JPY could regain its strength; however, a hint for August monetary policy change, coupled with weaker inflation mark, could further damage the Yen.

AU CPI, Canadian GDP And The Rest

Following last week's dovish RBA minutes and upbeat Canadian details, Wednesday's AU CPI & Friday's Canadian GDP become important data-points to foresee AUD & CAD moves respectively. Australian CPI bears the forecast to reverse its prior -0.2% mark with +0.4% and the PPI, up for Friday, is also likely to print +0.2% against -0.2% previous reading while the Canadian GDP might show the lowest growth number in 2016 with -0.5% mark against +0.1% of the earlier month. While AU inflation numbers may give breathing space to RBA before they could think for rate-cut, which can help the AUD, a running downside in Crude prices, Canada's main export, coupled with weaker growth figure, can magnify the Canadian Dollar (CAD) weakness.

Follow me on twitter to discuss latest markets events @Fx_Anil.

Tuesday, 26 Jul, 2016 / 2:09

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