FX Week Ahead: Chinese CPI, Bank of Canada Rate Decision, US CPI

Talking Points:

– With a subsequent theatre of a US-China trade fight unfolding, courtesy will righteously be honed in on a news handle in a entrance days.

– The Bank of Canada will lift rates this Wednesday, though a Canadian Dollar will be impacted some-more by brazen superintendence than a rate travel itself.

– The Jun US Consumer Price Index will assistance attest a market’s noticed timing of a Fed’s subsequent rate travel for September.

Join me on Mondays during 7:30 EDT/11:30 GMT for a FX Week Ahead webinar, where we plead tip eventuality risk over a entrance days and strategies for trade FX markets around a events listed below.

07/10 Tuesday | 01:30 GMT | CNY Consumer Price Index (JUN)

Chinese policymakers have continued to press brazen some-more impulse in sequence to branch credit risks, and we have seen marketplace participants watch Chinese acceleration total as a substitute for domestic demand.Declines in cost levels have been noticed in a context of critical stresses on domestic expenditure and mercantile growth. But now that a US-China trade fight has developed into a some-more intense, confrontational form, Chinese policymakers have authorised a Chinese Yuan to fast decrease contra a US Dollar.

As remarkable previously, “The awaiting of tariffs, quite on soybeans, could simply yield a strike to acceleration total down a highway this year – usually not yet.” We’re still early in a diversion so-to-speak, though a total impact of a weaker Chinese Yuan and tariffs now means we should be examination for Chinese acceleration to climb aloft via a second half of a year.

Pairs to Watch: AUD/JPY, USD/CNH, USD/CNY

07/11 Wednesday | 07:00 GMT | EUR ECB President Draghi Speaks in Frankfurt

Economic information has started to urge some-more broadly alongside acceleration expectations, and now traders will demeanour to ECB President Mario Draghi’s speechon Wednesday for clues on financial policy. The Citi Economic Surprise Index for a Eurozone, that was during a near-seven year when it was -100.1 on Jun 8, rebounded to -36.1 by a finish of final week. The final Jun Eurozone Consumer Price Index due in on Thursday during +2.1% y/y will underscore a border to that information has stabilized.

Accordingly, now that information movement is behind on a upswing with acceleration using higher, it seems expected that ECB President Mario Draghi will be means to refrain from arising a exceedingly dovish tinge during possibly of his process speeches this week (Monday and Wednesday). At a Jun ECB rate decision, Draghi pronounced that it was probable that a rate travel came as shortly as “summer 2019,” and it’s probable he offers some-more tinge to that point. Rates markets are now pricing in Sep 2019 for when a ECB will initial pierce on rates.

Pairs to Watch: EUR/GBP, EUR/JPY, EUR/USD

07/11 Wednesday | 14:00 GMT | CAD Bank of Canada Rate Decision

Despite a fact that a Canadian labor marketplace has mislaid scarcely -10K jobs on normal per month in 2018, a postulated pull aloft by appetite prices has helped keep acceleration pressures towering in a BOC’s aim range. And so, with trade tensions remaining (but not materially escalating), a BOC is staid to follow a Fed’s evidence and tie process serve when they accommodate on Wednesday. Overnight index swaps are pricing in an 81% possibility of a 25-bps rate travel subsequent week, adult from 52% in a final week of June.

The range for serve Canadian Dollar gains exists over a arriving process meeting. Rates markets are pricing in a 67% possibility of another BOC rate travel by a finish of 2018; brazen superintendence is front and core for a Canadian Dollar. Confirmation that process officials are gripping a doorway open for additional process movement this year – in aggregate, 3 25-bps hikes in 2018 by a BOC – could be all that a Canadian Dollar needs to continue a convene contra a US Dollar.

Pairs to Watch: CAD/JPY, EUR/CAD, USD/CAD

07/11 Wednesday | 15:35 GMT | GBP BOE Governor Mark Carney Speaks in Boston, Massachusetts

Since a finish of May, while a Citi Economic Surprise Index for a UK has increasing from -67.3 to -5.1 today, Aug BOE rate travel contingency have increasing from 29% to 82%. BOE policymakers have been profitable courtesy to a change in mercantile information movement as well. Last week, Governor Mark Carney pronounced that new information had given him “greater confidence” that a soothing Q1’18 expansion total “was mostly due to a weather.” Governor Carney summarized, “Overall, new domestic information advise a economy is elaborating mostly in line with a May Inflation Report projections, that see direct flourishing during rates somewhat above those of supply and domestic cost pressures building.”

The solid build in rate travel expectations in new weeks has helped a British Pound stabilize, though not most more. Market participants seem to be of a mindset that an Aug rate travel by a BOE will be of a one-and-done variety (currently labelled in during 82%), with overnight index swaps pricing in reduction than a 20% possibility of a second rate travel before a finish of 2018.

Pairs to Watch: EUR/GBP, GBP/JPY, GBP/USD

07/12 Thursday | 12:30 GMT | USD Consumer Price Index (JUN)

The subsequent collection of acceleration information for June will uncover that both measures of a US Consumer Price Index are above a Federal Reserve’s medium-term aim of +2%. Headline CPI is due in during +2.9% from +2.8%, and Core CPI is due in during +2.3% from +2.2% (y/y). Ahead of a Jul FOMC rate preference after this month, these readings might assistance underscore a hawkish tinge among policymakers that helps attest a arena of financial process ensuing in 4 accumulative hikes in 2018. Given that a September travel is already 65% priced-in, it would seem that a June US CPI recover will usually have a singular impact on markets; a skip will leave a bigger impact than a beat.

Pairs to Watch: EUR/USD, USD/JPY, DXY Index, Gold

Read more: Euro Forecast: Euro Stabilization to Continue as Attention Turns to Draghi


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— Written by Christopher Vecchio, CFA, Senior Currency Strategist

To hit Christopher, email him during cvecchio@dailyfx.com.

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