Market Outlook for the Week of July 25-29

Last week the ECB raised rates by 50 bps and the markets are still evaluating the change, but the raise is not likely to impact the EUR/USD’s trajectory and prevent it from further depreciating which is the expected scenario.

The main events of the week ahead are: For the USD, the consumer confidence data, the FOMC Meeting and the Core PCE Price index q/q; for the AUD, the CPI q/q; and for the JPY, the Japan (Tokyo) Inflation which is not expected to have a major impact but could give an insight into how nationwide prices are evolving. The BOJ is not showing signs of joining the hawkish camp, at least for now.

The political crisis in Italy, the battle for the next Prime Minister in the UK that’s expected to be over in early September and the headlines about the war in Ukraine will continue to add uncertainty in the market over the coming weeks. The unprecedented heat waves hitting Europe are expected to impact the energy market in particular.

The W.H.O declared monkeypox a global health emergency and it remains to be seen if the market will react in any way to this development. And finally, the month end rebalancing is also something we should keep an eye on.

As we’re heading into the last month of summer, market conditions could be tricky due to low liquidity. Traders will be taking a closer look at this week’s FOMC minutes. After Waller recently backed a 75 bps rate hike the USD entered into a correction, but the market is now pricing in a 100 bps hike. A lot can happen until Wednesday, of course.

Nomura expects a 100 bps hike, even though the consensus among analysts is now for 75 bps, as it adjusted its view after the last CPI print data. Nomura’s main argument is that given the inflation increase it feels like the Fed could be behind the curve and this will help them catch up.

This week’s meeting will set the tone for the USD for the next month as there won’t be another FOMC meeting in August; just the Jackson Hole Symposium.

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