Last week the CPI print data for the CHF was below expectations and as a reaction the Swiss franc depreciated. Analysts at Pantheon say inflation will peak in August and as a result CHF will see a fall in September. This can also mean the SNB is likely to not be as hawkish at the next meeting as previously anticipated.
credit: Pantheon via Twitter
The RBA raised rates by 50 bps and stated that a more flexible approach in the future is possible. For the September meeting a 25 bps hike is expected.
The BOE also hiked its policy rate by 50 bps. Going forward, the BOE won't have a predetermined path for rate changes as it expects to see 5 negative quarters of GDP starting in Q4 and a 13.3% YoY inflation rise in October followed by an elevated inflation throughout 2023. This is expected to mark the most severe financial crisis for the UK in 60 years.
On Friday, the US economic data came stronger than expected meaning the Fed will have to act aggressively to fight inflation. It seems the labor market is strong and the US economy is not yet in a recession. The odds are now 65% in favor of a 75 bps hike at the next FOMC meeting.
Even if it's debatable whether the US economy is in a recession, the most important aspects that should be taken into consideration are the outlook for the labour market and corporate profits. As inflation remains high and likely hasn't peaked yet, this week's CPI data is very important to watch. Some Fed members are scheduled to speak this week and at the Jackson Hole Symposium we will hear from Powell, who might be more hawkish than expected.
For now, the labour market looks very strong, but there are signs it's beginning to cool down as job openings data fell for the third consecutive month in June. Also, the unemployment rate is a lagging indicator. As it was seen in the past, it's not unusual for the initial jobless claims to register an increase before the start of a recession and these claims have seen a steady rise since April. The future doesn't look very encouraging at the moment and it's likely things could worsen.
The main events for the week:
- on Monday it will be interesting to watch the EUR Sentix Investor Confidence as it can give us some clues even though it's not expected to be a market mover -- a drop is expected;
- on Wednesday we have the CPI m/m for the USD;
- on Thursday the USD PPI m/m;
- on Friday we have the GDP m/m and prelim GDP q/q for the GBP.
Analysts expect US inflation data to come below expectations. Last month inflation was 9.1% and now it's expected to be 8.7%. It's still high and the Fed will have a hard time reducing inflation towards its target. A potential reason for the inflation cooling is the lower gasoline prices, but core inflation is expected to continue climbing.
The UK GDP data for
Q2 will be released this week and expectations are for a slide of -0.2%
compared to the 0.8% print in Q1. June GDP is expected to decline 1.2%
month-over-month. While modest GDP growth is possible in the latter half of the
year, high energy prices are going to continue having a negative impact and the
UK is expected to fall into recession by early next year.
USD/CAD expectations
From a technical point of view the pair looks bullish, with no important economic news for the CAD this week. All that can influence its direction is the CPI data. Fed speakers Evans, Kashkari and Daly are expected to deliver their remarks. For this week fundamentals should be in favour of the USD which is likely to be well supported.
According to Scotiabank analysts, “soft and weakening correlations between the CAD and stocks and commodities perhaps tilt risks more towards choppy range trade in the near-term.”
In conclusion, the conditions for significant CAD appreciation remain very low.
USD/CAD closed the week near 1.2975. A correction is expected until the support at 1.2885. If that level won't hold the next support is at 1.2845. After that the uptrend should resume.
On the upside the next level of resistance is at 1.3045.
GBP/CHF expectations
On the H1 chart GBP/CHF looks bearish. A correction is expected until 1.1655, but if the price won't break above it the next support level will be 1.1575. If that doesn't hold, the next one is at 1.1525. Further strength is expected for the CHF in the week ahead. Also take a look at Friday's UK GDP data that could weigh on the pair's direction.
This article was written by Gina Constantin.
