Light week ahead for the FX market but trading summer conditions might make it a difficult one. The most awaited event is no doubt the Jackson Hole Symposium where Fed Chair Jerome Powell is expected to deliver a speech.
On Tuesday, we'll have several surveys for the eurozone and for the UK, such as the manufacturing PMI and flash services PMI.
The PMIs for the euro area are expected to print lower as it reflects the economic situation, lower consumer confidence and the fact that Europe is facing a higher risk of a deeper recession than the US. The war in Ukraine and the energy prices that are expected to rise further will put pressure on the economy. The outlook is not very promising for Europe as businesses and consumers will have to deal with higher energy prices and the impact of drought on production.
The ECB is expected to continue hiking rates to fight inflation. Analysts believe that for the September ECB meeting a 45 bps rise is priced in.
UK PMI on Tuesday is expected to come below expectations -- at 52.0 from 52.6. The economic situation in the UK is still bleak, the inflation doesn't show signs of cooling down and the high energy prices will continue to have a negative impact until the end of the year. For the next BOE meeting the markets are pricing in a 50 bps rate hike with a 89% probability.
Also, on Tuesday we have new home sales and durable goods orders indicators for the U.S. The housing market was negatively impacted by the higher mortgage rates and it is under severe pressure. Demand has dipped more than expected and will add to the economic slowdown. Durable goods orders are expected to have advanced 1.1% according to Wells Fargo, supported by aircraft orders in particular. However, when weighing in transportation and the price jump, the real gain is expected to actually be slightly negative.
On Thursday, USD traders will be watching the prelim GDP q/q and the first day of the Jackson Hole Symposium. Fed Chair Powell speech is on Friday so markets will be eyeing any clues regarding upcoming monetary policy decisions. Analysts from Nomura expect Powell to reiterate his previous speech with a focus on price stability above everything else.
Last week, the July Fed minutes gave us some hints that the Fed is cautious about declaring a victory over inflation prematurely and is more likely to rely on data-driven responses, Barclays analysts said.
It's worth keeping in mind that until the September meeting there will be another jobs report on Sept. 2 and the August inflation data on Sept. 13th.
Wells Fargo expects the Fed to hike the rate by another 75 bps at the September meeting, to be followed by 50 bps in November and 25 bps in December. After that the Fed is likely to pause and see how the broader economy has been impacted by the hikes.
GBP/CHF expectations
On the H1 chart the pair looks good for selling opportunities. A correction until the 1.1400 level of resistance is to be expected. If that level doesn't hold, the next resistance is at 1.1470. From there, the downtrend should resume. On the upside the next level of resistance is at 1.1515.
From a technical point of view a bullish divergence seems to be forming on the H4 chart and it might indicate a bigger correction if fundamentals also support the move, so it's worth keeping an eye on. The pair still has room to depreciate further until the end of the month targeting 1.1165 -- the March 2020 low.
EUR/USD expectations
The pair closed the week near the 1.0025 level of support. A correction is then expected until 1.0130 or 1.0165. From there the downtrend should resume, targeting 0.9965. From a fundamental point of view, the EU economy is showing signs of slowdown and is prone to a deeper recession.
This article was written by Gina Constantin.