The WEEKLY WRAP Forex Market Analysis: Monday 25th to Friday 29th July 2016

Overview:

  • The Japanese Yen surged by almost 2% following the Bank of Japan’s meeting.
  • U.S. economic growth remained weak in the second quarter. It rose just 1.2% annualized after a downwardly revised 0.8% in the first quarter.
  • The Canadian economy shrank more than expected in May with GDP falling 0.6%, its biggest decline since March 2009 while wildfires in Alberta caused a sharp drop in oil extraction.
  • Eurozone GDP data showed the economy slowed sharply in the previous quarter, growing just 0.3% which was in line with expectations.

Highlight

Oil prices continued to weaken on Friday, falling to their lowest levels since April. They are on track for their biggest monthly decline since December 2015 as slowing economic growth and oversupply push prices lower.

 

US Dollar
The Dollar is lower by more than 0.5% today following Q2 economic growth coming in at less than half the consensus forecasts. This further confirms the view that the Federal Reserve will maintain interest rates at their current level against a backdrop of both lacklustre domestic and slowing global growth.

British Pound
The Pound is treading water today, taking the sharp drop in consumer confidence largely in its stride. Figures from the Bank of England on mortgage and consumer borrowing for June came in stronger than expected which may support the economy in the months ahead. UK consumer confidence however, suffered its sharpest drop since 1990 following the Brexit vote, dropping to -12 from -1 in June.

Euro
The Euro edged higher again today as the economic data confirmed a continued rise in growth and an unexpected rise in CPI. This will keep the ECB sitting on the sideline for now and we expect the Euro to remain subdued against the Dollar with both central banks on hold for the time being. Eurozone inflation picked in July, with prices rising 0.2% as the economic recovery gradually starts to feed through to increasing prices. Unemployment meanwhile, was unchanged at 10.1%

Canadian Dollar
The Loonie is under pressure following a bigger than expected fall in GDP and weaker oil prices. Slower U.S. growth will weigh on the Canadian economy due to the two countries close economic links, putting further downwards pressure on the Canadian Dollar.

Australian Dollar
The Aussie bounced back from an initial drop following the Bank of Japan’s announcement and was marginally higher against the US Dollar and the Euro. Markets have lowered expectations for a rate cut next week from the RBA and AUD/USD looks to be contained between 0.73 and 0.78 for now.

Featured Currency
The Japanese Yen is today’s best performing G10 currency, rising almost 2% against its major counterparts and has gained 4% from a 2-month low versus the Dollar just last week. The Bank of Japan doubled their purchases of exchange traded funds, disappointing investors who were expecting bolder action after the government announced it was stepping up fiscal stimulus to boost growth.

Sourc: XE

 

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