What's ahead this week? US Fed meeting & EUR GDP data
GBP: Under pressure due to the impasse over the EU-UK Northern Ireland Protocol, alongside Covid-19 fears and the real impact on supply chains and the service sector due to self-isolating. The FTSE struggled to gain ground, and traders will probably refrain from taking large optimistic bets in this environment.
GBP/USD struggling this morning at 1.3750 after a couple of buoyant days last week. A break-out from 1.3600 – 1.3830 will mark a fundamental shift in sentiment.
GBP/EUR has been volatile, but remains within the short-term ranges. At 1.1650 – middle of recent ranges, this pair will be looking at data this week -
USD: The FOMC meeting this week will give the USD it’s direction in the medium-term, but the USD has benefitted through last week as a safe-haven currency .. the market preferring the relative safety of the USD – but momentum has stalled. In the US, Dr.Fauci said that "we are going in the wrong direction" with surging Covid cases and added that the high number of unvaccinated people is a problem.
The impasse over the bipartisan infrastructure deal might be broken as early as today, as lawmakers met over the weekend. Although a domestic issue, clearing this hurdle will maybe boost the USD.
This Wednesday is key for the USD, as the FOMC meets to announce interest rates and guidance / expectations for future growth. Most economists expect the announcement of ‘tapering’ to be made at the September / November meetings – as Goldman Sachs note:
“Fed officials have said that they intend to signal that tapering is coming "well in advance" a phrase they also used in reference to the start of balance sheet runoff in 2017.”
“That precedent suggests that "well in advance" means two meetings worth of hints before the formal announcement, consistent with our expectation of the first hint in September, a second hint in November, and a formal announcement of tapering in December.”
EURO: Last week saw the ECB announce (with a very firm tone) that accommodative monetary policy is here to stay. This saw the EURO sell-off, and means the common currency will struggle to find upward momentum in the short-term. EUR/USD languishes at 1.1750 – the bottom end of recent ranges.
In a nutshell, the ECB and its President Christine Lagarde made it crystal clear that Eurozone monetary policy will remain highly accommodative for the foreseeable future, with its deposit rate not rising from minus 0.5% until inflation hits 2.0% and stays there. It would indeed allow “a transitory period” in which inflation is moderately above its new 2% inflation target, the ECB said.
Euro data later this week focuses on GDP stats and inflation (see below for timing).
AUD/USD is on the back foot amid speculation that Sydney's lockdown would be extended through September. Most of Australia is under lockdown as covid continues spreading, while the vaccination campaign is struggling to pick up. Daily lows of 0.7300 make the recent 0.7500 levels seem a far-away target now.
This week’s key events:
USA: Tues Durable Goods Orders / Weds FOMC meeting
EURO: Weds German Consumer Confidence / Thursday German Inflation / Friday Eurozone Inflation data & GDP
GBP: Mon BoE speech
AUD: Tues Inflation data