• US calendar heavy this week with important data releases


  • JPY strengthens as Nikkei plunges 3.3%


  • Canadian dollar up as crude oil remains above $100 per barrel


USD – The US Dollar is broadly stronger against its most traded peers with the DXY dollar index currently trading at 81.744. The US has a key week ahead with the release of the Q2 GDP report, the FOMC policy meeting on Wednesday, and the US unemployment report for July on Friday. Market participants will be closely watching this week’s FOMC policy meeting for any indication on the Fed’s commitment to low rates and on its intentions to begin tapering QE by its meeting in September. In the last statement, the Fed stated that it plans to keep rates at current levels until the unemployment rate dips below 6.5%. Expectations are that the US economy expanded by 1.0% in Q2, down from 1.8% in Q1, a clear indication that substantial fiscal tightening has weighed on growth. However, it appears that the slowdown in growth of the economy has had little impact on employment growth, as the non-farm payrolls report for July is expected to be a bright spot for the dollar and provide support for the Fed to begin to taper QE in the near-term.

EUR – The euro is down 0.25% since Friday’s close. For the last 6 months, EUR has traded within a 710 point range and we do not expect a catalyst sufficiently large enough to push EUR outside of this range. The main event in the euro-zone in the week ahead will be the latest ECB policy meeting on Thursday. Since its last meeting on July 4th, the leading PMI surveys have reinforced the ECB’s confidence that a return to growth in the euro-zone is likely in the 2H 2013, although there may be concerns over the weaker than expected money supply growth in June. We expect the ECB to maintain a firm monetary policy stance reiterating that it will either maintain or lower present rates for an extended period. However, the euro may receive some support in the near-term if President Draghi indicates that the probability of lower rates has eased.

GBP – The pound advanced for a third straight week vs. the dollar as economic data signaling the U.K. recovery is strengthening boosted demand for the currency. Sterling is trading at its strongest level in a month following last week’s better-than-expected GDP release, which came in at 0.6% in the second quarter following a reading of 0.3% in the first quarter. This week brings the Bank of England meeting on the 1st, where Governor Mark Carney is expected to leave rates unchanged and keep the asset purchase program flat at 375B GBP.

JPY – The yen strengthened trading back below the 100.00 level after Japanese retail sales fell and Chinese industrial companies reported slowing profits, boosting demand for safe haven assets. The correlation between JPY and equities continues to be strong, making it difficult for JPY to rally when the Nikkei is under pressure. BoJ Governor Kuroda spoke overnight on the Japanese economy. He stated that in his view raising the sales tax in two steps is not a major drag on growth, urging that the government take action on fiscal consolidation as needed. PM Abe is expected to decided how to implement the higher consumption tax by the fall- currently at 5% and set to rise to 8%. This is important for both the economic outlook and rating agencies.

Commodity Currencies – The Canadian dollar advanced for the third straight day as crude oil, the country’s largest export, remained above $100 per barrel for over two weeks. According to a Bloomberg survey of 18 economists, Canada will have grown 0.3% in May from 0.1% in April. The loonie touched $1.0255 in trading on July 25th, the strongest level seen since mid-June. In Australia, because of a dip in mining investment due to slowing Chinese demand and in an effort to boost domestic demand, the RBA is expected to cut their benchmark rates over the next year. In their meeting on Aug. 6, the RBA is expected to reduce the cash rate target from 2.75% to 2.5% as there continues to be weakness in the domestic economy. However, in New Zealand, current Governor of the RBNZ Graeme Wheeler said on July 25th that increasing rates “will likely be needed.” He would be the first central bank head to signal tighter monetary policy.

RMB – The renminbi is flat since Friday’s close, currently trading at 6.1348 per dollar in the offshore market. The PBoC set the reference rate, around which the spot rate can trade within a +/- 1% range, at 6.1705 today, an increase of .02%. According to a Bloomberg survey, the PMI for July should come in at 49.8 and represent the third straight monthly contraction. After a pretty consistent appreciation from the beginning of the year and reaching a high of 6.1157 on May 27th, the renminbi has stalled over the past two months due to concerns over China’s growth and increased speculation that the Fed would begin to reduce its QE program.

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