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FX Market Macro Wrap 21 Jul 17
Looking ahead, next week is action packed, on Monday, OPEC and the non-OPEC meeting will get the most attention. For EUR traders Preliminary Manufacturing PMI will be the key with upside risk to EUR from positive numbers. On Wednesday, BoJ Deputy Nakaso and RBA Lowe will grab some attention along with UK Q2 GDP (Preliminary) numbers. However, the main focus will remain on the FOMC rates decision. Friday will also be important as the US Q2 GDP (advance) will become due.
This was a tough week for USD with losses across the board as we said at the start of the week no change in outlook was expected given the thin data. USDJPY (-1.3%) and the US 10-year yields (-8bp to 2.24%) both fell in tandem, continuing their declines from last week. The BoJ kept the policy unchanged (as we suggested earlier in the week) but this did little to stem the flow of USDJPY weakness.
The biggest event for the week was the ECB policy meeting. ECB President Draghi repeated the same rhetoric with nothing new; however, EURUSD rallied as a lack of dovish signal from the ECB calmed jittery investors who were fearful of a dovish surprise. Also, Draghi comments that governing council has not set a date to change guidance and that council will take a decision on guidance in autumn was seen in a positive light. We are still targeting 1.1701 on EURUSD.
AUD was relatively strong at the start of the week with NZD fairly week; even though AUD is ending the week as the second strongest G10 currency we have seen a role reversal for AUD and NZD. This is due to hawkish remarks from NZ finance minister and dovish remarks from RBA Deputy Debelle. Also, New Zealand reported a sharp rise in visitor arrivals. Elsewhere, NOK was the strongest currency this week buoyed by improved Crude outlook and improved risk sentiments.
GBP has ended the week as the second worst G10 currency following CPI miss and we don’t see the current outlook changing unless inflation improves.