Market Outlook for the Week of 22nd – 26th July

The calendar for the FX market is light in terms of scheduled events on Monday and Tuesday. On Tuesday, traders will be monitoring the U.S. existing home sales data and the Richmond manufacturing index.

On Wednesday, the focus shifts to flash services PMI and flash manufacturing PMI for Australia, Japan, the eurozone, the U.K., and the U.S., as well as new home sales for the U.S. Later in the day, all eyes will be on the BoC monetary policy announcement.

On Thursday, we’ll get the advanced GDP q/q, unemployment claims, and durable goods orders m/m for the U.S. Additionally, the G20 meeting will take place on Thursday and Friday.

On Friday, for Japan, the Tokyo core CPI y/y will be released, and for the U.S., the core PCE price index m/m, personal income m/m, personal spending m/m, revised UoM consumer sentiment, and revised UoM inflation expectations.

The consensus for existing home sales in the U.S. is 3.99M compared to the prior 4.11M. The outlook is not very promising, with a 0.7% decline in last month’s print, mainly driven by a decline in single-family home purchases. Higher mortgage rates and rising prices continue to put pressure on the housing market, and a continuation of this trend is likely to be reflected in this week’s data.

New home sales have also been negatively impacted in recent months. For this week’s data, the consensus is 643K compared to the prior 619K. According to analysts from Wells Fargo, “a growing share of builders have offered monetary incentives like price cuts and mortgage rate buy-downs in recent months, but higher-for-longer rates appear to be hindering their efforts.”

The most anticipated event of the week will be the BoC monetary policy announcement. The market expects a 25 bps rate cut, which is more or less fully priced in according to analysts from Scotiabank. However, some analysts surveyed by Bloomberg expect the BoC to keep its monetary policy unchanged at 4.75%.

Since the last meeting, inflation has shown some signs of cooling down with headline inflation printing below expectations. At the last meeting, BoC Governor Tiff Macklem noted “sustained evidence” of inflation easing. The unemployment rate also rose to 6.4% from 6.2% in June which further supports the possibility of a rate cut. However, some core inflation components still run hot, which might be why some analysts believe the Bank will keep rates unchanged.

In terms of trading, a hold would be supportive for the CAD, while a cut would likely have little impact. Aside from the BoC meeting, there is nothing significant for Canada this week.

On Thursday in the U.S. the focus will be on the advance estimate GDP q/q, as the market expects to see an improvement in this week’s print. The consensus is 1.9% compared to the prior 1.4%. If realized, this will reflect better consumer spending, rising inventories, and slightly stronger investment readings, ING analysts said.

Despite that, the prospects for the U.S. economy are not very optimistic and weaker growth is expected in the second half of the year. The Fed is currently expected to cut rates at the September meeting.

In the U.S., the consensus for the core PCE price index is 0.2%, compared to the prior 0.1%. For personal income m/m, it is 0.4% compared to the prior 0.5%, and for personal spending m/m, it is 0.3% vs 0.2% prior.

Even though the core PCE price index is expected to come in at 0.2%, ING analysts highlight some risks it could print below that. Nevertheless, a 0.2% print would still be in line with the Fed’s 2% y/y inflation target and is unlikely to change its monetary policy plans. The market currently expects a first 25 bps rate cut in September.

This article was written by Gina Constantin at www.forexlive.com.