Weekly Recap
With traders awaiting the directional catalyst of Fed chairman Powell’s Jackson Hole speech on Friday, flows felt a little constrained ahead of the event. Leading up to Friday, USD was mostly weaker as a dismal set of US PMI readings on Tuesday once again put the focus back on diminishing growth prospects, causing some hesitation among USD bulls.
These concerns were echoed elsewhere with both the UK and the Eurozone seeing weaker-than-expected PMI results last month. Elevated inflation and ongoing supply issues have taken a toll on businesses and consumers alike and looking out across the remainder of the year, fears of a global slowdown are building.
Despite these concerns, it was a much better week for equities markets and the broader risk complex. With USD softening over the week, equities indices lurched back into action seeing broad-based gains across the board. Price movements this week show just how sensitive markets have become to USD flows and rate-hike expectations, suggesting plenty of room for upside if the USD starts to peel off properly.
The ECB meeting minutes released towards the end of the week were another key highlight. Along with the 50bps hike announced in July, the minutes showed the central bank to be firmly hawkish in its outlook, focused on pressing ahead with further such hikes until inflation is brought under control, despite acknowledging the growth risks building on the horizon.
Finally, oil prices saw more encouraging price action this week, at least before a downturn on Thursday. The chatter of a possible OPEC production cut along with a further drawdown reported by the EIA, helped lift sentiment in crude futures. The drop in USD was also supportive with crude futures moving off recent lows, suggesting room for a fuller recovery in the near term.
Coming Up This Week
- Non-farm payrolls
The latest round of US labour reports on Friday will be the headline event for the week. On the back of a solid set of data last month, traders will be keen to see how the US labour market performed over the summer period given the special conditions we’ve seen this year, namely higher energy prices and ongoing COVID/supply disruptions.
Policymakers’ focus has gravitated away from the labour market again recently, with the Fed setting its sights on taming inflation. With that in mind, it will likely take a material shock (on either side of forecasts) to cause any overt volatility in the USD. Nonetheless, with recession fears constantly on the table, any weakness will certainly be a cause for concern.
- Swiss (CHF) CPI
In light of the SNB’s recent hawkish shift, which saw them lifting rates from -0.75% – 0.25%, traders will now be closely watching incoming inflation data with a view to gauging further moves from the Swiss National Bank. The SNB warned last time around that with inflation rising, it stood ready to take further action if necessary. If this week’s data comes in above forecasts, CHF is likely to appreciate further on expectations of another SNB rate hike this month. Similarly, if inflation is seen falling below forecasts, this will take some of the pressure off the SNB near-term, likely driving some CHF weakness.
- Eurozone CPI estimate
An early look at eurozone CPI for august will be closely watched on the back of recent hawkish ECB minutes. With the ECB focused on excessive inflation, a further strong CPI reading here is likely to keep expectations skewed towards another large hike in September, potentially even greater than 50bps as the ECB continues to battle runaway consumer prices.
Forex Heat Map
Source: MyFXBook
Technical Analysis
Our favorite technical chart of the week – GBPAUD
Following the breakdown below the 1.72 support earlier this month, GBPAUD has since been rejected as it tried to reclaim it as resistance. With price now moving firmly below the level once more, while within the broad bear-channel from YTD highs, the outlook is skewed towards a continuation lower towards the next key support zone around 1.62. Bulls need to see a break back above 1.72 to negate this bias.
Source: TradingView
Economic Calendar
Plenty to keep an eye on this week data-wise, with the latest set of US labour reports the headline event to watch, among other key events and releases. See the calendar below for the full schedule.
Source: MyFXBook
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.
