Weekly FX Market Recap: July 25 – 29

It was FOMC monetary policy decision week once again, and it looks like we got a slightly different tone from Powell and company that sparked a move away from the US dollar.

Notable News & Economic Updates:

Gazprom cuts Nord Stream 1 gas flows on Monday

China’s property sales are set to plunge 30% — worse than in 2008, S&P says

US crude exports gain 21% to hit record high; likely a result of Europe’s move away from Russian oil – EIA

Fed raised interest rates by 75 bps to a range of 2.25% – 2.50%

South Korea’s manufacturing outlook came in at 80 for August vs. 82 in July, the lowest level since Jan. 2021

China Industrial Profits data for June: +0.8% y/y vs. -6.5% y/y in May – NBS

China’s Politburo event on Thursday signaled that more stimulus is not likely coming and that covid controls will likely remain

Biden begins fifth call with China’s Xi, looking to tamp down Taiwan tensions

Oil steadily rose back over $100/bbl this week as traders priced in lower odds of a production boost from OPEC+, likely to stay unchanged until September

US Personal Consumption Expenditures price index hits highest level since January 1982 at 6.8% y/y in June

Intermarket Weekly Recap

Dollar, Gold, S&P 500, Oil, US 10-yr Yield, Bitcoin Overlay 1-Hour

The main event of the week was the latest monetary policy decision from the FOMC. And as usual, it looks like traders were mostly waiting on the sides in anticipation for a widely expected 75 bps interest rate hike.

This was characterized by relatively low volatility early this week across the broad financial markets. Probably the only significant move to speak on was oil’s strength, likely influenced by news of Gazprom cuts Nord Stream 1 gas flows to Europe on Monday. This also was possibly the driver for early week euro weakness as rising energy costs will likely continue to weigh on the fragile European economy.

Price action started to get more lively with the Fed’s monetary policy statement on Wednesday, after the FOMC raised the Fed funds target range to 2.25% – 2.50% as widely expected.

But it wasn’t until Fed Chair Powell’s speech following the statement that really got traders moving, specifically after toning down expectations of more aggressive tightening ahead. He said that while large increases could be appropriate, the FOMC will be data dependent going forward.

This development is in line with growing sentiment that the aggressive stance that global central banks have taken to tame extreme high inflation conditions may be softening, especially as we continue to see broad economic updates still pointing to an economic slowdown ahead.

The most notable data point was likely the weaker-than-expected advanced US GDP read on Thursday, coming in well below expectations at -0.9% for Q2 2022 and signaling a technical recession in the US

This argument of slow monetary policy tightening (or even reversing back to easing) is likely why we saw a higher move in risk assets, as well as a move lower in the US dollar and bond yields (which also likely contributed to a rise in dollar denominated assets). This sentiment seems to have continued into the weekend, despite another record inflation read from the Federal Reserve’s preferred inflation metric, the Core PCE price index, hitting new highs.

USD Pairs

Overlay of USD Pairs: 1-Hour Forex Chart

Overlay of USD Pairs: 1-Hour Forex Chart

Dallas Fed Manufacturing Survey declined by 5 points to -22.6 in July

US consumer confidence dropped to its lowest level since Feb. 2021 as inflation bites

US New home sales fell by 8.1% to 590K in June

US Durable Goods Orders Rose 1.9% m/m in June vs. +0.8% m/m in May

US advance goods trade balance: -98B in June vs. -104B in May

US pending home sales fell 20% y/y in June; -8.6% m/m; NAR forecasted that total sales will be down 13% for 2022

Fed Hikes by 75 basis points; Powell sees no US recession now; may slow pace of rate hikes

US advanced GDP read showed the economy contracted by -0.9% in Q2 2022 vs. a +0.5% forecast; price index rose by 8.7% q/q vs. 7.9% forecast

US weekly initial unemployment claims was 256K vs. 261K the previous week

Senate Democrats strike deal on the Inflation Reduction Act of 2022

US Core PCE rose by +4.8% y/y in June; employment cost index rose by 5.1% y/y

GBP Pairs

Overlay of GBP Pairs: 1-Hour Forex Chart

Overlay of GBP Pairs: 1-Hour Forex Chart

UK Retail sales volumes continued to fall in July according to the CBI monthly Distributive Trades Survey

CBI Industrial Trends Survey showed orders balance fell to +8 from +18, the lowest since October

UK BRC price shop index jumped from 3.1% to 4.4% in July

UK Consumers borrowed an additional £1.8B in consumer credit in June

UK mortgage approvals fell by 3% in June to 63K home loans

EUR Pairs

Overlay of EUR Pairs: 1-Hour Forex Chart

Overlay of EUR Pairs: 1-Hour Forex Chart

Sentix investor confidence slumped in July to -26.4 from -19.9 forecast

Germany’s Ifo business climate index fell to 88.6 vs. 90.2 forecast; June was revised lower to 92.2

The European Central Bank will consider the economic situation when deciding on rates – Robert Holzmann

French industrial production stayed unchanged in May vs. projected 0.1% uptick

ECB Lagarde says EU leadership needs to step up and that ECB will continue to raise interest rates

German GfK consumer climate index slipped from -27.7 to -30.6

Annual growth rate of aggregate aggregate M3 stood at 5.7% in June 2022, after 5.8% in May 2022 (revised from 5.6%)

Spain’s unemployment rate fell to 12.48% in the second quarter of 2022 vs. Spain’s unemployment rate fell to 12.48% in the second quarter of 2022 vs. 13.65% previous read

Eurozone July final consumer confidence -27.0 vs -27.0 prelim

European Central Bank Governing Council member Ignazio Visco said on Thursday that there is a risk of recession in Europe, and that rate hikes going forward will likely be data dependent.

Spanish flash GDP showed 1.1% expansion vs. projected 0.4% growth

French flash GDP printed 0.5% expansion in Q2 vs. estimated 0.2% uptick

CHF Pairs

Overlay of CHF Pairs: 1-Hour Forex Chart

Overlay of CHF Pairs: 1-Hour Forex Chart

KOF Economic Barometer dips by 5.1 points to 90.1 in July

Swiss Retail Sales for June 2022: turnover rose by +3.2% y/y vs. an upwardly revised -1.3% y/y in May

CAD Pairs

Overlay of CAD Pairs: 1-Hour Forex Chart

Overlay of CAD Pairs: 1-Hour Forex Chart

Canada Q2 GDP m/m: 0.0% vs. 0.3% previous, hampered by construction worker’s strike and chip shortages

NZD Pairs

Overlay of NZD Pairs: 1-Hour Forex Chart

Overlay of NZD Pairs: 1-Hour Forex Chart

New Zealand business sentiment for July showed 56.7% pessimism level vs. 62.6% in June

AUD Pairs

Overlay of AUD Pairs: 1-Hour Forex Chart

Overlay of AUD Pairs: 1-Hour Forex Chart

Australia’s annualized inflation rate reaches 6.1% – the fastest annual increase in 31 years

Australia’s retail sales momentum slowed from 0.9% to 0.2% in June

Australian producer prices rose 1.4% as expected, following earlier 1.6% increase

JPY Pairs

Overlay of Inverted JPY Pairs: 1-Hour Forex Chart

Overlay of Inverted JPY Pairs: 1-Hour Forex Chart

Bank of Japan board reshuffle brings in less dovish members

BOJ Core CPI: 1.6% vs. 1.5% forecast/previous

Japan Services PPI y/y: 2.0% to 106.9 vs. a rise of 1.9% previous

BOJ Deputy Governor Masayoshi Amamiya warned of uncertain wage path, vowed to keep easy policy

Japanese unemployment rate unchanged at 2.6% vs. expected improvement to 2.5%

Japan’s industrial production rebounded by 8.9% after the previous 7.5% decline

Japanese retail sales grew 1.5% vs. estimated 2.8% gain, 3.7% previous

Japanese consumer confidence index slumped from 32.1 to 30.2 in July

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