Week Ahead – Doves are Back in Control

Fundamental analysis of Forex market

US stocks rallied to record highs and dollar weakness returned as investors shrug off the hawkish tilt given at last week’s FOMC policy decision. A wrath of Fed speak showed that more policymakers are in the camp that inflation will be transitory. The trading week ended with a mixed inflation report that contained a downside surprise with the monthly reading. The key inflation indicator for the Fed rose to 3.4%, the highest levels since the early 1990s as the reopening of the economy was combined with the base effects of when everything shutdown last year. The month-over-month decline however supports the argument that inflation might be peaking. It will take a couple more monthly reports to provide deeper clarity on whether the surge in prices might actually be persistent, but for now the doves are in control.

If the Treasury curve continues to steepen, Wall Street might not have such a quiet summer. Currently, the 10-year Treasury yield is stuck in the middle of the trading range that has been in place since March (1.40% to 1.75%). With high-yield spreads at the tightest levels since June 2007, this market is ready for a major breakout at some point this year. Easy monetary policy is accompanied with robust growth and that should continue to drive the rise in Treasury yields.

The upcoming week is filled with economic releases and a wrath of central bank speak. Monday will have speeches by Fed’s Williams, ECB’s de Guindos, and lots of commentary from the G-20. Tuesday’s spotlight will shine on ECB’s Lagarde and the Fed’s Barkin. Wednesday will provide a key update from the OECD on global minimum tax. Thursday is a busy day filled with global manufacturing PMI readings, an OPEC+ ministerial meeting, and weekly initial jobless claims. Friday is all about the nonfarm payroll report which should show further momentum in the labor market. The prior two reports disappointed, so many traders may look for a sharp bounce back here. Expectations are for 695,000 jobs created in June, but with the expiration of some federal unemployment benefits, a big upside surprise could happen.



Wall Street has digested a wrath of Fed speak and is clearly in wait-and-see mode over both how hot inflation will run and how much will the labor market recovery accelerate.  The US economic recovery was close to peaking, but with a bipartisan infrastructure spending plan, it just might run a little hotter.  Investors will closely monitor whether the bill will get enough lawmaker support.

The main economic release of the week will be the June nonfarm payroll report.  The US jobs report will most likely show further progress in the labor market recovery with the median estimate of 695,000.  The economy has a shortfall of roughly ten million jobs to fill before the Fed can deem substantial progress has been achieved.  If some of the hawkish members of the Fed want to stand by their expectations of a late rate hike at the end of 2022, this labor market better start to see a strong acceleration higher.  The second most important release will be the June ISM manufacturing report which should show factory activity remains robust.  Deepening supply woes could lead to further fears of persistent pricing pressures.


Inflation remains a buzzword for most of the major central banks, as economies reopen. The markets are unclear where ECB policymakers stand on inflation and tapering stimulus.

On Saturday (June 26), Germany’s Minister of Finance Olaf Scholz will meet with the European Commission’s  Paolo Gentiloni and Frans Timmermans and Swedish Prime Minister Stefan Lofvenspeak at the Party of European Socialists conference in Berlin.

The MSC will host a debate on foreign and security policy, attended by the three German Chancellor candidates – Annalena Baerbock, Armin Laschet and Olaf Scholz.

The second round of the French regional elections will be held on Sunday (June 27). These elections are critical ahead of the presidential vote in 2022 and could determine the fate of President Emmanuel Macron’s reform agenda. Macron and far-right leader Marine Le Pen did poorly in the first round.

There are a host of meetings on Monday:

Foreign ministers from across the globe will meet in Rome at the Global Coalition to Defeat ISIS conference. The meeting is co-hosted by Italian Foreign Minister Luigi Di Maio and Secretary of State Anthony Blinken.

G-20 foreign ministers, including Blinken, will meet in Matera, Italy. Topics on the agenda include building back better with global partners, with a focus on Africa.

ECB Vice President Luis de Guindos, Bundesbank President Jens Weidmann and Deutsche Bank CEO Christian Sewing will address the Frankfurt Euro Finance Summit.

The EU Agriculture and Fisheries Council meets in Luxembourg, with a focus on reform of the EU’s Common Agricultural Policy.

On Tuesday, the Brussels Economic Forum will host online speeches from German Chancellor Angela Merkel, ECB President Christine Lagarde, EU Economy Commissioner Paolo Gentiloni and WTO Director-General Ngozi Okonjo-Iweala.

ECB Governing Council member Francois Villeroy de Galhau speaks at the Paris Europlace conference. French Finance Minister Bruno Le Maire is also scheduled to deliver remarks.

On the data front, there are a host of releases on Tuesday:

The Eurozone will publish June data for Economic Confidence and Consumer Confidence.

Germany will release CPI for June, with a consensus of 0.4% m/m and 2.3% y/y.

France releases ILO Unemployment for Q1 and Consumer Confidence for June.

On Wednesday, French President Emmanuel Macron will host Presidents Alberto Fernandez of Argentina and Andres Manuel Lopez Obrador of Mexico at a UN gender equality meeting in Paris.

Germany releases unemployment for June. The consensus is -15 thousand, unchanged from the prior release.

On Thursday, we’ll get a look at the June Manufacturing PMIs for the Eurozone, Germany and France, Spain and Italy.

The week wraps up with ECB President Christine Lagarde, who will speak at the Rencontres Economiques d’Aix-en-Provence economic forum on Friday.


Sweden’s central bank, the Riksbank, is expected to maintain the benchmark rate unchanged at zero at its policy meeting on Thursday. Investors will be focused on any hints as to policy changes which could affect the Swedish krona, which has been rising.


The British pound could remain heavy if the BOE continues to drive home the point that the tightening of monetary policy is far away as the economy still warrants much support.  Investors will closely follow BOE speak this week over any data points.

On Monday, BoE Chief Economist Andy Haldane, who is leaving the central bank later this month, will address the Policy Exchange think tank on the topic of “making a success of leveling up.”

On Tuesday, Andrew Hauser, Executive Director for Markets at the BoE, will speak on a panel at the 8th Asset Pricing Workshop, hosted by the Center for Applied Macro Finance at the University of York. Hauser will speak on “liquidity in government bond and repo markets.”

The UK will release the Nationwide House Price Index, Mortgage Approvals and Money Supply.

Haldane will deliver remarks at the Institute for Government on Wednesday. Haldane will discuss “changes in monetary policy and central bank communications over the past 30 years.”

In economic news, the UK releases Final GDP for the first quarter. No change is expected from the preliminary readings of -1.5% q/q and -6.1% y/y.

On Thursday, BoE Governor Andrew Bailey delivers remarks at the “Plain Numbers Launch.” He will also speak at the Mansion House at a Financial and Professional Services event.

Emerging Markets

Czech Republic

On Tuesday, no revisions are expected with the Czech Republic’s final GDP reading for the first quarter.  On Thursday, manufacturing PMI for June is expected to show a modest improvement from 61.8 to 62.1.


Poland inflation will closely be watched on Wednesday.  Poland’s central bank has been resistant to raising interest rates as pricing pressures continue to rise. The June inflation report is expected to see prices tick higher on a monthly basis to 0.4%, and ease from 4.7% to 4.6% on an annual basis.


Note: China releases May Industrial Profits on Sunday. Despite high base effects, a print well below 100% could see regional sentiment hit in early Monday trading. AUD and NZD selling could occur.

China releases heavyweight official and Caixin PMIs Wednesday and Friday which are usually market moving in the short-term. China equities have rallied this week and could fall if the PMIs disappoint as there is a vast amount of money invested in the China recovery story.

Elsewhere China has widened its attempts to force down commodity prices with some success. However the US infrastructure Bill looks closer to reality and that may undo China’s efforts in this area. Having rallied the past week, if commodities start rising again, China growth companies may suffer. Evergrande secured more funding this week, relieving the default worries circulating on the Mainland.

China’s clampdown on tech continues with anti-trust launched against Didi Chuxing which is coincidentally nearing a US IPO. China’s interventions in recent times continue to weigh on equity sentiment.

The PBOC has set a series of weaker CNY fixes in the past week and also added net liquidity vis the repos for the first time in months. It appears to be signalling that it has seen enough Yuan strength. USD/CNY and by default, USD/Asia have remained bid and if US-derived strength occurs, Asian FX could correct sharply.


India’s COVID-19 cases appear to be on the right track as cases fall.  That has led to increased buying of oil by importers which has put a floor under USD/INR over the last week as parts of the country reopen. The INR has remained under pressure due to this and post-FOMC US Dollar strength. Notably it has retraced no losses versus the greenback as opposed to DM currencies. USD/INR is in danger of breaking higher through 74.400 which could trigger foreign investor flight from local equities and the bond market.

IIndia releases its Current Account, Foreign Debt, Manufacturing PMI, Balance of Trade in the coming week. The pandemic will have wreaked havoc with all of them which could add to the clouds over India equities in the week ahead as they have remained unchanged for the week, even as markets globally post gains.

Australia & New Zealand

The AUD/USD and NZD/USD have performed poorly this week, even as other DMs have posted gains after the post-FOMC selloff. Both remain vulnerable to deeper selloffs as barometers of global risk sentiment, especially if Friday’s US Non-Farm Payrolls outperforms. The failure of Asian FX to retrace any of its post-FOMC losses suggests sentiment remains nervously weak with regards to the potential for faster US tightening.

NZ releases ANZ Jobs which should provide some support to NZD and local equities. Australia releases Private Credit, Balance of Trade and Markit Manufacturing PMI. The former are likely to be more market-moving if they post weak results.

ALthough not reflected in their equity or currencies, both Australia and New Zealand go into the weekend on Covid-19 tenderhooks, with parts of inner Sydney being locked down and the NZ to NSW part of the air bubble being suspended. If cases appear in Wellington this weekend, or escalate sharply in NSW, both their equity markets and currencies will start the week under pressure.


Japan has a heavy data week with Thursday’s Tankan Survey the week’s highlight. The data will only be good for short-term volatility. Japan equities are slavishly following the day-to-day direction of Wall Street at the moment.

USD/JPY has risen to 111.00 as the US/Japan yield differential firmed up after the BoJ was unmoved. Unless that continues, USD/JPY will struggle to maintain gains above 111.00. For now, USD/JPY remains an entirely yield differential play, so look to US markets for direction.

Political risk is increasing in Japan. PM Suga has been dragged into the Toshiba Board governance scandal with accusations of direct interference. This is an evolving situation which won’t unseat him, but threatens to make the rumoured post-Olympics snap election a much more closely run affair.



Energy traders will pay close attention to the OPEC+ meeting that will likely show a modest production increase in August.  The need for more supply is growing and the oil market will likely support an increase around a half million barrels per day.  What will complicate the meeting is the uncertainty over Iranian output.  The seventh round of Iran nuclear talks may resume and the urgency is growing to get a deal done before the August 3rd inauguration day.  A deal still seems likely and depending on how much sanction relief Iran gets coud drive the next major move in crude.


Gold has started to stabilize as investors await further clarity over pricing pressures.  Inflation is still looking transitory and that could provide support for bullion. Precious metal traders will pay close attention to how much support is behind the bipartisan $579 billion infrastructure deal.  Democrats will continue to work on a separate bill that will cover child and elder care, education, health care and climate change.

Gold is not in the clear just yet and could quickly fall back into the danger zone if the dollar and Treasury yields start to surge.  If gold does not recapture the $1,800 level over the next week or two, momentum technical selling could settle in.


Bitcoin remains stuck in a trading range, awaiting any developments over progress into transitioning into cleaner energy and how quickly mining can get transitioned out of China.  If Wall Street is still behind Bitcoin, fresh endorsements should follow Andreessen Horowitz’s $2.2 billion crypto-focused venture fund.  Bitcoin remains trapped in the $30,000 to $41,000 trading range and that should last a little longer.

Key Economic Events

Saturday, June 26

  • Germany’s Minister of Finance Scholz, the European Commission’s Gentiloni and Timmermans, and Swedish Prime Minister Lofven speak on the final day of the Party of European Socialists conference
  • German chancellor debates

Sunday, June 27

  • Second round of French regional elections.

Economic Data/Events:

  • China industrial profits

Monday, June 28

  • Global Coalition to defeat ISIS meet in Rome
  • G-20 foreign ministers meet in the southern Italian city of Matera.
  • ECB Vice President de Guindos and Bundesbank President Weidmann speak at the Frankfurt Euro Finance Summit.
  • New York Fed President Williams takes part in a virtual BIS panel discussion.
  • Outgoing BOE Chief Economist Haldane speaks
  • The Russell Reconstitution takes effect for both the 1000 and 2000 indexes.
  • US Sixth Fleet cohosts Sea Breeze 2021 with Ukraine
  • The European Commission publishes its summer economic forecasts.

Economic Data/Events:

  • Mexico Trade Balance
  • South Africa BER consumer confidence

Tuesday, June 29

  • German Chancellor Merkel, ECB President Lagarde, EU Economy Commissioner Gentiloni and WTO Director-General Okonjo-Iweala speak at Brussels Economic Forum
  • BOE policy maker Hauser speaks on a panel
  • Richmond Fed President Barkin speaks at a Market News International (MNI) event.
  • Reserve Bank of Australia Governor Lowe addresses a banking summit in Sydney.
  • ECB Governing Council member Francois Villeroy and France Finance Minister Le Maire speak at the Paris Europlace conference
  • India’s Oil Minister Pradhan speaks at Bloomberg’s virtual BNEF Summit, in New Delhi.

Economic Data/Events:

  • China June Manufacturing PMI: 50.8e v 51.0 prior, non-Manufacturing PMI: 55.5e v 55.2 prior
  • US S&P CoreLogic house prices, FHFA house price index, Conference Board consumer confidence
  • Czech Republic GDP
  • Eurozone economic confidence, consumer confidence
  • France ILO unemployment, consumer confidence
  • Germany CPI
  • Japan jobless rate, retail sales, supermarket sales
  • Mexico international reserves
  • UK Nationwide house price index, mortgage approvals, money supply
  • Turkey economic confidence

Wednesday, June 30

  • OECD attempts to finalize a proposal to overhaul global minimum corporate taxation, which will be presented at the G-20 meeting in July
  • BOE’s Haldane speaks at the Institute for Government on the changes in monetary policy and central bank communications
  • French President Macron meets Argentinian President Fernandez and Mexican President Lopez Obrador
  • US House Financial Services holds a hearing titled “America on FIRE: Will the Crypto Frenzy Lead to Financial Independence and Early Retirement or Financial Ruin?”

Economic Data/Events:

  • US ADP employment change, Chicago PMI, pending home sales
  • UK GDP, current account balance, total business investment
  • Canada GDP
  • Turkey Trade Balance
  • Germany Unemployment
  • Russia Unemployment
  • Japan Industrial production
  • Eurozone CPI
  • Poland CPI
  • Russia CPI
  • Hong Kong retail sales, money supply, budget balance
  • New Zealand ANZ business confidence
  • Australia private sector credit
  • Singapore money supply, bank loans
  • Japan vehicle production, housing starts, consumer confidence index
  • Thailand BoP current account balance, trade
  • South Africa Trade Balance, money supply, private sector credit, monthly budget balance
  • Russia current account balance, retail sales, real wages
  • EIA Crude Oil Inventory Report

Thursday, July 1

  • China’s President Xi Jinping addresses the nation on the 100th anniversary of the founding of the Chinese Communist Party
  • OPEC+ ministerial meeting held
  • BOE Governor Bailey speaks at both the “Plain Numbers Launch” and the Mansion House for a Financial and Professional Services event.
  • Canadian markets are close to observe Canada Day.

Economic Data/Events:

  • US construction spending, initial jobless claims, June ISM manufacturing: 61.0e v 61.2 prior, Markit Manufacturing PMI
  • Sweden central bank (Riksbank) rate decision: Expected to keep benchmark interest rate at zero
  • Eurozone Unemployment rate
  • European Manufacturing PMIs: Eurozone, UK, Germany, France, Germany, Spain, Italy, Turkey, Hungary, Czech Republic, Poland
  • India Manufacturing PMI
  • Thailand Manufacturing PMI
  • South Africa Manufacturing PMI
  • Russia Manufacturing PMI
  • New Zealand building permits
  • Japan vehicle sales, Jibun Bank PMI
  • Australia commodity index, trade balance
  • China Caixin manufacturing PMI
  • Russia gold and forex reserves

Friday, July 2

– ECB President Lagarde speaks at the Rencontres Economiques d’Aix-en-Provence.

– SIFMA advises fixed income markets close early at 2:00pm EST to observe Independence Day

Economic Data/Events:

  • US June Change in Nonfarm Payrolls: 695Ke v 559K prior, factory orders, unemployment rate, trade balance, durable goods
  • Eurozone PPI
  • New Zealand ANZ consumer confidence
  • Japan monetary base
  • Thailand foreign reserves, forward contracts
  • Singapore PMI, electronics sector index
  • Russia GDP
  • Spain unemployment change
  • Canada international merchandise trade, Markit manufacturing PMI, building permits

Sovereign Rating Updates:

  • No sovereigns rating updates on the calendar