Week Ahead in FX (July 25 – 29): Fed, GDP, and Earnings in the U.S., CPI and GDP Data in the Eurozone

Traders are in for a busy week as the US shares its corporate earnings, interest rate, and GDP data while the Eurozone prints its growth and inflation numbers.

Can’t decide which market event to trade in the next few days?

You can start by reading up on what markets are expecting from the major releases:

Major Economic Events:

Australia’s quarterly CPI (Jul 27, 1:30 am GMT) – Higher fuel and building costs pushed consumer prices 2.1% higher in Q1 2022, which brought annual inflation from 3.5% to 5.1%. That’s the highest since the early 2000s!

Markets expect the quarterly rate to slow down to 1.8% in Q2 while the annual rate could accelerate to 6.2%. RBA’s trimmed mean CPI – which excludes volatile items – may slow down from 1.4% to 1.0% even as the annual rate accelerates from 3.7% to 4.6%.

Faster-than-expected CPI would support RBA Gov. Lowe’s hints that the central bank would keep tightening in the foreseeable future.

FOMC statement and press (Jul 27, 6:00 pm GMT) – Fed members are expected to raise interest rates by 75 basis points after a similar move last month.

Keep an eye on a possible hawkish surprise of a 100 bps increase. For now, softer US data and comments from hawkish members point to a 75bps rate hike. The Fed won’t be meeting in August, though, so front-loading higher rates isn’t off the table.

Last but not least, watch out for the Fed’s forward guidance. Traders will want to know the Fed’s tolerance for a recession as well as its plans for its last three meetings in 2022.

US advance GDP (Jul 28, 12:30 pm GMT) – Is the US in a technical recession? Markets see Uncle Sam growing by 0.4% in Q2 following a 1.6% contraction in Q1.

IDK tho. Consumer spending – which makes up about 70% of the GDP – was revised sharply lower from 3.1% to 1.8% in Q1 while monthly reports also point to a slowdown in economic activity.

Either way, a recession probably won’t affect the Fed’s tightening schedule since the central bank has its eyes on inflation. Still, a weaker-than-expected GDP release could affect risk-taking across markets this week.

Busy US earnings week – US equities traders better have their trading plans (and vats of coffee) ready because a ton of closely-watched corporations will be printing their quarterly earnings data this week.

These major companies include Alphabet, Microsoft, Meta, AAPL, 3M, Boeing, and Amazon. Upside earnings surprises would support last week’s speculations that most of the bad news has been priced in already and that Uncle Sam’s corporations can survive inflation and growth concerns.

GDP and CPI reports from Eurozone countries – Traders will watch the major Eurozone can handle how well the region ECB’s rate hikes and a possible energy crisis.

Annual inflation numbers from Germany (7.2% from 7.6%), France, (6.2% from 5.8%), and the Eurozone (9.0% from 8.6%) could show that the region hasn’t hit “peak inflation” just yet.

Meanwhile, annualized GDP reports from France (4.0% from 4.5%), Germany (1.1% from 3.8%), and Eurozone (2.8% from 5.4%) will likely reflect further growth slowdown. Yipes!

Forex Setup of the Week: EUR/USD

EUR/USD Daily Forex Chart

A Fed rate hike and top-tier Eurozone reports scheduled this week mean we gotta pay attention to EUR/USD!

The pair is poppin’ wicks (shadows) at 1.0250, which is right smack at the 38.2% Fibonacci retracement level of July’s downswing.

Does this mean that EUR bulls have run out of steam?

Optimistic earnings reports in the US could inspire risk-taking in the markets and push EUR/USD closer to the trend line and 61.8% Fib level near a previous support.

If traders focus on the Fed’s rate hike, though, or if this week’s themes highlight inflation and growth concerns in the Eurozone, then EUR/USD could drop from its current levels and revisit its July lows near parity.

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