Weekly trading forecast July 1 - 5

Geopolitics, monetary policy and macroeconomic data - those are the main three factors to drive financial markets in the first week of July. Although the summer vacation season is heading to the middle of traditionally low trading volume and thin market conditions, major shifts in the fundamental environment could keep affecting traders’ sentiment. Last week’s G20 summit in Tokyo might continue impacting currency pairs, safe-haven bonds and high-yield equities as a potential escalation of the trade war between the U.S. and China would cut the global economic growth significantly. With the pack of crucial economic reports, the Reserve Bank of Australia will start the series of major central banks’ meetings in July. In other regions, investors will monitor Chinese, German and British Manufacturing and Services PMI, as well as Eurozone, Canadian and U.S. unemployment. Oil speculators will focus on OPEC meeting and U.S. Inventories report, while gold traders will monitor the fixed-income market’s change in real yields across the board.

The trading week could start with gaps on major assets’ charts as the geopolitics will fill weekend headlines and lots of talks will be around U.S.-China trade talks. In case if two leaders were able to reach at least a temporary agreement, global stock indices would soar on the back of risk appetite. Otherwise, we might see bullish gaps on the gold price chart as traders will be rushing into safe-havens amid concerns over the trade war escalation. Hong Kong and Canada will be off for local holidays, however, the trading volume should remain at a high level. China’s Manufacturing and Non-Manufacturing PMI report would influence the market open early Monday at 01:00 AM GMT, and emerging markets currencies will be vulnerable to a slide south if the data failed to meet analysts’ predictions. Australian AIG Manufacturing index would affect the price action for AUD/USD in the light of the upcoming RBA’s meeting later this week. Japan’s Tankan survey is supposed to show how bad things are for large manufacturers in the country, and USD/JPY could be vulnerable to selling pressure. German, EZ and British Manufacturing PMI and Unemployment rate are due to release in the European trading session, while U.S. traders will be watching the same report by ISM institute. Significant shifts of data compared to the market’s expectations might affect currency pairs like EUR/USD, GBP/USD and EUR/GBP on Monday.

New Zealand’s Business Confidence report will bring the volatility back to markets early Tuesday. South Korea will publish Consumer Inflation data, while Japan will start the 10-year JGB Auction, which could affect the fixed-income market in the third largest world’s economy. However, the main spike of volatility could be seen for AUD/USD and AUD/JPY as the Reserve Bank of Australia will announce the interest rate decision and publish the economic statement at 04:30 AM GMT. Although the market players do not expect the regulator to change the financial conditions in the country, currency speculators will read the statement carefully in order to understand further steps in the monetary policy. If the RBA were too dovish, promising more rate cuts this year, then the Aussie could drop versus major currencies, especially Euro and Japanese yen. Nationwide HPI and Construction PMI will have an impact on the British Pound as those reports are crucial for the Bank of England. German Retail Sales and European PPI will be important for the single European currency. RBA Governor Lowe will host a press conference at 09:30 AM GMT dedicated to the monetary policy perspective, and the market’s focus will come back to the Australian dollar. The American trading session could be comparatively quiet as there are only two significant reports scheduled for Tuesday: U.S. Redbook Survey and Canada’s RBC Manufacturing PMI.

Wednesday will continue the trading week with Australian Building Permits and Trade Balance, which have quite a high prediction with a room for a negative surprise. The Bank of Japan Board Member Funo will speak in Tokyo about possible steps to weaken the yen, and he might verbally intervene if the USD/JPY currency pair would keep falling sharply. Traders should keep their take-profit orders tight during the press conference. Services Purchase Managers Index will be published in China, Spain, Germany, France, Great Britain and the United States. American traders will also watch ADP Non-Farm employment change, trying to predict possible range for the NFP report later this week. WTI and Brent Crude oil prices would be affected by U.S. Inventories report which is expected to drop -12.3 million barrels. That might support the black gold if confirmed. Canada will watch Trade Balance data as well as the update in exports and imports volume. USD/CAD might be pressured on the back of those events. U.S. exchanges will close early on Wednesday due to the upcoming Independence Day celebration.

Although U.S. traders will be off on Thursday, the trading volume and volatility could remain at comparatively high levels because of essential macroeconomic reports in other regions such as Japan’s Foreign Investments in Stocks, Australian Retail Sales, Swiss and Eurozone Consumer Price Index. Spanish 10-year Obligation Auction could affect the overall yield for Eurobonds.

Friday’s price action is expected to be much more dense and sharp with a potential peak in the United States due to the NFP report to release during the New York opening bell. Before that, global investors will stick to Japan’s Household Spending, German Factory Orders and Industrial Production, French trade Balance and Spanish Consumer Confidence. British Halifax House Price index might influence the GBP/USD and EUR/GBP currency pairs. The U.S. Labour Market will be the main event of the week. The last report was a big miss for the greenback, which dropped more than 2% versus its major peers since then. If the U.S. economy failed to create more than 165 thousand new jobs in June (which is doubtful), then the U.S. dollar might face another round of selling pressure, 10-year Treasuries could drop due to the spike of expectations for more rate cuts by the Federal Reserve, while U.S. stock indices could plunge on the back of concerns over the economic slowdown. The most attractive currency pair to speculate on Friday is USD/CAD as Canada will release the Employment change as well. The contrast between the two countries could send the pair to the lowest rate in six months. On the other hand, whipsaws and false breakouts are also possible.
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