- UK GDP mom, BOC Monetary policy meeting, and US CPI are the key risk events lined up
- The US dollar responded negatively to the mixed June NFP
- We expect Bank of Canada to hike interest rate to 1.5%
Review: In response to the dollar weakness, EUR, GBP, AUD and NZD off from the June lows. Trade uncertainties and the mixed June non-farm payroll helped these pairs to bid last week.
With the start of the second week, Brexit news dragged the cable slightly.
News: The Brexit Department confirmed that former Minister David Davis has resigned from public office reported by Wallstreetcn.
- In the EA, German factory orders helped the euro to bounce last week. We learned that New orders in manufacturing had increased in May 2018 by 2.6% from the April 2018 a decrease of 1.6%. Looking ahead it’s a reasonably quiet week except for official export German data.
- In the UK, political uncertainties just have been started weighing the pound in an early Asian bid. The week ahead, the UK monthly GDP is the more interest event to watch. It’s a way of keeping track of how the UK economy is doing. The Office for the National Statistics shifted from quarterly to monthly GDP releases from this week. This week’s ONS report covers the March-May. We still believe, looking over the coming weeks, the official data prints will pave the way to the Q3 rate hike. Recent better than expected PMI survey data (Services PMI) push the August BOE rate hike probability to nearly 80.00%.
- In the US, June CPI is the principal risk event scheduled on Thursday. The Consumer Price Index (CPI) measures the change in prices paid by consumers for goods. In May, the CPI increased 0.2% after rising 0.2% in April. We expect both the headline CPI and core CPI remain unchanged again at 0.2%. Moreover, we are more interesting to watch the Trade war headlines and NATO.
- Turning to the Central bank meeting, we expect Bank of Canada to hike interest rate to 1.5% in its Wednesday meeting. In the April BOC meeting, the bank said, “GDP growth in the first quarter was weaker than the Bank had expected, but should rebound in the second quarter, resulting in 2 percent average growth in the first half of 2018.” The bank also highlighted “Slower economic growth in the first quarter primarily reflects weakness in two areas, the housing market, and exports.”
Chart of the week: USDCAD
Bulls will regain strength well above 1.3165 with targets 1.3220 and 1.3280. Support zones remain between 1.3000-1.2920. In case of a dovish take, the cross USDCAD could be rebound to 1.3280-1.3300 levels.
It is important to always keep in mind the risks involved in trading with leveraged instruments.
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