Traders balanced a really heavy economic calendar, with global inflation figures and central bank rhetoric taking focus in the front half of the week, while U.S. updates sparked quick bouts of heavy volatility throughout.
Central bank rhetoric was arguably at the top of topics of focus, including talk of FX intervention, as the People’s Bank of China made surprise announcements while jawboning kept yen declines in check.
Later on, hawkish remarks from a handful of central bank leaders highlighted divergences between policy plans while also bringing some risk-off flows in the mix.
USD Pairs
Dollar pairs were off to a lazy rangebound start, and bearish lean before the U.S. currency soon took advantage of risk aversion and renewed Fed tightening hopes.
Fed head Powell dropped hints about future interest rate hikes once again, explaining that the strength of the labor market suggests that monetary policy might not be restrictive enough. These hawkish remarks, along with mostly upbeat mid-tier data, lifted the Greenback’s spirits midweek.
The U.S. currency popped higher again after the initial jobless claims report beat estimates but later on return a good chunk of gains after core PCE price index report showed further slowing in inflation rates.
? Bullish Headline Arguments
May core durable goods orders rebounded 0.6% month-over-month after an earlier 0.3% decline, with headline reading up 1.7% vs. estimated 0.8% drop
New home sales jumped from 680K to 763K, beating the consensus at 677K
Richmond manufacturing index improved from -15 to -7 in June vs. the estimated -12 figure
CB consumer confidence index jumped from 102.5 to 109.7 in June vs. the projected 103.9 reading, the highest level since early 2022
Fed Chairperson Powell mentioned during the ECB forum that monetary policy might not be restrictive enough, with a strong labor market lifting the odds of more hikes this year
Initial jobless claims came in at 239K vs. 264K forecast and 265K previous, easing fears of a U.S. labor market slowdown
Final Q1 GDP revised higher to 2% year-over-year growth from 1.2% previously reported
? Bearish Headline Arguments
U.S. Core PCE in May: 3.8% y/y (3.9% y/y forecast; 4.3% y/y previous); personal income grew by +0.4% m/m (+0.3% m/m forecast/previous); personal spending growth slowed to +0.1% m/m (+0.4% m/m forecast; +0.6% m/m previous)
U.S. Pending Home Sales in May: -2.7% m/m (-0.6 m/m forecast; -0.4% m/m previous)
EUR Pairs
After a shaky start to the week, the shared currency staged a pretty steady rally against its rivals, particularly against the commodity currencies.
However, the euro was unable to hold on to some of its gains, returning a good amount of its winnings to the dollar and the franc towards the latter part of the week while maintaining a strong lead versus the yen and Kiwi.
? Bullish Headline Arguments
German central bank expects that the technical recession will end in Q2
During the ECB forum, Chairperson Lagarde noted the impact of tight labor markets on wage increases, which are further stoking inflationary pressures
Preliminary Germany CPI for June: +6.4% y/y vs. +6.1% y/y in May
Euro area unemployment rate for May 2023 at 6.5% as forecasted
Flash Euro area CPI for June: 5.5% y/y(5.6% y/y forecast; 6.1% y/y
? Bearish Headline Arguments
German GfK consumer climate index fell from a downgraded -24.4 reading in May to -25.4 in June vs. the projected -22.9 figure
Euro Area Private Loans in May: 2.1% y/y vs. 2.5% y/y previous; Broad monetary aggregate M3: 1.4% y/y vs. 1.9% y/y previous
Eurozone Economic Sentiment Index for June: 95.3 vs. 96.4 in May
Germany Retail Sales for May: +0.4% m/m (+0.4% m/m forecast; +0.7% previous)
Germany Unemployment rate ticked higher to 5.7% vs. 5.6% forecast/previous
GBP Pairs
Sterling had a tough Monday, chalking up steep losses to the dollar and franc early on. The rest of the week was a mixed bag as GBP pulled up against the commodity currencies and the yen, while giving up even more ground against the rest of its peers.
There were hardly any reports released from the U.K. economy in the past few days, which probably explains why the pound simply moved as a counter currency instead of finding its own direction.
? Bullish Headline Arguments
During the ECB forum, BOE head Bailey pointed to noticeable signs of sustained inflation in the U.K. economy and that they would take all steps necessary to bring it back to target
U.K. Nationwide House Prices in June: +0.1% m/m (-0.3% m/m forecast; -0.1% m/m previous)
? Bearish Headline Arguments
U.K. BRC price shop index fell from 9.0% year-on-year to 8.4% in June to reflect weaker inflation among retailers
U.K mortgage approvals for May: 50.5K vs. 49K previous; net consumer credit by individuals: £1.1B vs. £1.5B
U.K. Final GDP read for Q1 2023: 0.1% q/q as forecasted/previous
CHF Pairs
The franc hit the ground running, as it still seemed to be drawing support from risk-off flows in the previous week.
It also helped that SNB head Jordan dropped strongly hawkish remarks over the weekend, suggesting that the central bank could carry on with tightening.
After a slight dip on Tuesday, CHF rallies resumed in the next couple of days, particularly against the Aussie and Kiwi.
? Bullish Headline Arguments
Over the weekend, SNB head Jordan mentioned in an interview that the latest hike was “very likely not quite” enough to calm inflation
Swiss Retail Sales (real seasonally adjusted) in May: +2.1% m/m (1.2% m/m forecast; -2.2% m/m previous)
? Bearish Headline Arguments
KOF Swiss Leading Indicators: 90.8 (90.9 forecast, 91.4 previous)
AUD Pairs
The Aussie is poised to closed the week net red as risk aversion and weaker expectations for PBOC stimulus dragged the commodity currency south.
Although the Australian currency was able to benefit from the Chinese central bank’s efforts to slow the yuan’s decline, downbeat Australian CPI added more weight for the Aussie’s slump as it dampened RBA tightening expectations.
? Bullish Headline Arguments
PBOC set USD/CNY reference rate lower than expected during their announcements on Tuesday and Thursday to slow down the pace of the yuan’s declines
Chinese Premier Li Qiang talked about the country still being on course to achieve its 5% economic growth target in 2023
Australian retail sales posted a 0.7% month-over-month uptick in consumer spending for May, following an earlier flat reading
? Bearish Headline Arguments
S&P cut the Chinese GDP forecast from 5.5% to 5.2% for the year, citing that an uneven pace of growth can be expected
Australian May CPI slumped from 6.8% to 5.6% year-over-year vs. an estimated dip to 6.1%
CAD Pairs
Overlay of CAD vs. Major Currencies Chart by TV
The Loonie also had a rough start, as risk-off flows from the earlier week carried over to Monday’s trading. It managed to draw some support from improving crude oil demand conditions but wound up returning some gains when the Canadian CPI fell short.
Midweek trading was a hot mess, as CAD advanced against its comdoll rivals while caving against the euro, dollar, and franc. Broad direction returned Friday, once again to the downside for Loonie as traders correctly anticipated a weak monthly GDP read.
? Bullish Headline Arguments
Crude oil opened slightly higher after a failed coup attempt in Moscow, as Wagner mutiny convoys returned to bases and charges against Prigozhin dropped
U.S. EIA crude oil inventories showed a draw of 9.6 million barrels vs. the estimated reduction of 1.4 million barrels and earlier draw of 3.8 million barrels
Bank of Canada Business Outlook Survey—Second Quarter of 2023: While far from normal, the BOC says that both consumers and businesses foresee improvements in inflation conditions and demand for goods and services.
? Bearish Headline Arguments
Canadian headline May CPI came in line with consensus at 3.4% year-over-year from the previous 4.4% reading, the lowest since June 2021
Canada GDP for April 2023: 0.0% m/m (0.2% m/m forecast, 0.1% m/m previous)
NZD Pairs
Overlay of NZD vs. Major Currencies Chart by TV
The Kiwi actually had a positive start to the week before all hell broke loose on Wednesday.
Other than risk aversion stemming from expectations of higher global borrowing costs, there was no clear catalyst for the sharp selloff.
After stabilizing Wednesday and Thursday, possibly with the help of improving NZ business confidence survey data and a slight shift positive in risk sentiment, the Kiwi was able to claw back some of its losses, managing to see green by the Friday close against a few of the major currencies.
? Bullish Headline Arguments
New Zealand ANZ business confidence index improved from -31.1 to -18.0 in June, reflecting weaker pessimism
JPY Pairs
The yen seemed to be pulled in opposite directions by risk-off flows and yen-tervention threats.
Early in the week, the BOJ Summary of Opinions revealed that a policymaker called for an early revision of their YCC. The report also showed that committee members acknowledged the chance that inflation could moderate soon.
However, rumors that the BOJ could step in to intervene in the FX market once USD/JPY hits the 145-150 range kept yen traders on edge for the rest of the week.
? Bullish Headline Arguments
BOJ core CPI climbed from 3.0% year-over-year to 3.1% as expected, marking fourth consecutive monthly gain
Japanese Ministry of Finance’s vice minister Kanda says they are closely monitoring FX moves with a high sense of urgency
Japan Housing Starts for May: +3.5% y/y (-2.0% y/y forecast; -11.9% y/y previous)
? Bearish Headline Arguments
During the ECB forum, BOJ Governor Ueda reiterated their plans to keep monetary policy unchanged while policymakers monitor the impact of higher rates on economic activity
