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FX Market Macro Wrap 28 July 17
The week marked a change of trend for CHF now the weakest currency. However, there was no change in outlook for USD as the greenback fell further following a dovish FOMC statement (with language on inflation changed from running “slightly below” to “running below” 2%). The US Q2 GDP also failed to excite the market as it came as expected. The top currencies for the week were SEK and NOK both boosted by better domestic data and a rise in crude prices, respectively. The EUR also added to its gains versus the low yielding currencies as the German 10-year bunds fell further. The German inflation rate (preliminary) also came in at 1.7%, above expectations of 1.5% and this also added to the positive Euro story
In the Equity markets, Nikkei closed the week in red mostly due to losses on Friday while the European equities were also looking at a mixed close for the week; FTSE -0.68%, DAX -0.23% and CAC40 +1.35%. In the rates market, the US and EU 10-year yields both recovered through the week, up 8bp and 6bp, respectively. In the energy space, crude prices got a boost by the OPEC putting a cap on Nigeria’s oil production and EIA crude inventory data showing another sharp drawdown in inventories.
Looking ahead, we may see more of the same with yields improving and equities weakening along with a continued weakness in the safe haven currencies (except EUR), including USD. On Monday, the Euro-area inflation (flash) and the unemployment rate will be the main focus followed by the RBA rates decision and global manufacturing PMI’s on Tuesday. The services PMIs will be due on Thursday along with the BoE rates decision and Euro-area retail sales. On Friday, the US NFP data will be the main focus but with Fed dependent on inflation we doubt if the US jobs data alone is sufficient to lift USD.