Week Ahead in FX (June 13 – 17): FOUR Central Bank Decisions and A Data Dump

FOUR major central banks will publish monetary policy decisions in the next few days! Think you’re ready for the potential volatility these events will inspire?

But before that, ICYMI, I’ve written a quick recap of the market themes that pushed currency pairs around last week. Check it!

And now for the closely-watched potential market movers this week:

Major Economic Events:

UK’s labor market data (June 14, 6:00 am GMT) – The UK’s unemployment rate has been improving steadily since the start of the year when it went below the 4.0% mark.

Analysts now expect the jobless rate to remain at 3.7% in May while employment, average earnings, and claimant count numbers are expected to print better figures compared to the previous month.

Positive labor market numbers would lessen fears of a recession and support BOE’s plans to hike its rates every month.

FOMC policy decision (June 15, 6:00 pm GMT) – Everyone and their momma expect the Fed to raise its interest rates by 50 basis points to 1.50% this week.

Thanks to Friday’s hotter-than-expected inflation figures, though, markets are also talking more 50-bp rate hikes AND a higher peak before Chairman Powell and his crew pause their tightening.

Keep an eye on the Fed’s statement and presser to see if we should expect a 50-bp rate hike in July and possibly a pause in September.

China’s data dump (June 15, 2:00 am GMT) – Lockdown prospects in the world’s second-largest economy left traders feeling shookedt last week, so you can bet that at least some risk traders will be watching this week’s releases.

Annual industrial production could improve from -2.9% to -0.8% in May; retail sales are expected to recover from -11.1% to -7.5%; Fixed asset investment might slow down from 6.8% to 5.9% so far this year, while the unemployment rate could stay at 6.1%.

SNB’s policy statement (June 16, 7:30 am GMT) – Markets mostly expect the Swiss National Bank (SNB) to maintain its 0.75% interest rates, so it would be interesting to see how CHF reacts if members raise their rates by 25 basis points as some are predicting.

A surprise rate hike could push CHF higher, but volatility across the board may be limited as traders await BOE’s event scheduled a few hours later.

BOE’s policy decision (June 16, 11:00 am GMT) – The Bank of England (BOE) is expected to raise its interest rates by 25 basis points for a fifth consecutive month this week as the central bank tries to rein in consumer inflation.

But look out for cracks in the members’ resolve to keep raising their interest rates! Word around is that less-than-stellar private sector output growth has highlighted increased recession risks and are making some members cagey about aggressive rate hikes.

This week’s UK data releases like industrial production, unemployment, and retail sales may give us clues on the UK’s growth prospects and second-round inflation effects.

BOJ’s policy statement (June 17, Asian session) – The Bank of Japan (BOJ) isn’t expected to announce policy changes this month, though members may use their turn under the spotlight to highlight their “concerns” about the yen’s recent sharp moves.

Forex Setup of the Week: GBP/USD

GBP/USD Weekly Forex Chart

Cable saw a Tweezer Tops-like pattern around the 1.2650 and now the pair is fast approaching the 1.2100 mark that had served as support in 2017, 2019, and 2020.

This week’s FOMC and BOE events just might drag GBP/USD back to its previous support. The FOMC is expected to raise its interest rates by another 50 basis points and hint at further tightening in the next few months.

In contrast, BOE will keep at its 25-bp rate hikes and possibly caution against more aggressive tightening amidst increased recession risks in the UK

Of course, we could see a buy-the-rumor, sell-the-news scenario where traders gain confidence in the central banks’ plans.

GBP/USD could find support from the 1.2200 May lows and make its way back to 1.2650.

If Cable dips back down to its 1.2100 support, though, then you may want to consider trading a weeks-long bounce.

If there’s enough bearish pressure, then you can also bust out your breakout playbooks.

Good luck and good trading this one!

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