Forex News Trading Strategy for the 4th – 8th of July

4 July 2016, 11:48
Sherif Hasan

Investors are still in the process of sorting out the ramifications of the surprise pro “Brexit” vote which created extreme volatility in the markets. This past week saw mostly sideways trading along with some recovery after the historically large swings immediately following the EU Referendum results. Equities markets bounced back well, and commodities continued to be supported. The focus has been on the overall risk tone and inter-market effects, as well as anticipation of potential action from some major central banks. With that said, we do have a few key risk events that could offer us some trading opportunities throughout the upcoming week.

Monday is a US bank holiday so we would expect trading to be on the thinner side.

Tuesday we have the Retail Sales print from Australia where a beat could continue to support an AUD that has remained propped up by improved risk tone and rising commodities. Strong rallies in Iron Ore, copper, and gold, as well as global equities have all been supportive of the AUD. With that said, we would look for this to be very short term considering we have the RBA rate decision and statement just 3 hours after the release. The RBA is heavily expected to hold rates steady at 1.75% so any trading opportunities will come from the tone of the statement. ASX Cash Rate Futures currently put the probability of a hold at 90%, and all 25 economist polled by Bloomberg expect the same.

Also on Tuesday we will see the latest Services PMI from the UK but we are not expecting this to have a major impact considering the current situation. If we happen to see a GBP rally from a positive print we would consider it a short opportunity as it will in no way change the direction of the BOE and an upcoming rate cut.

Following the Services PMI we will hear from the BOE’s Carney, and if his most recent comments are any hint at what is to come, we would expect more weakness for the GBP. In his most recent comments last week, Carney hinted at the possibility of a summer rate cut from the BOE which added more pressure to the already struggling pound.

Wednesday we will see the latest ISM Non-Manufacturing PMI from the US which is expected to improve to 53.5, however this is only a slight recovery of the surprise decline in May. Still, a positive showing here will likely boost a USD that is likely to remain supported heading into Friday’s US labor report.

Also on Wednesday comes the release of the FOMC minutes where traders will be looking for any clues to upcoming policy moves by the Fed. We do not see this as immediately tradable upon release as it will take traders some time to read through and interpret the key points.

Early Thursday during Asia we will hear from the BOJ’s Kuroda who is due to speak at a branch managers meeting in Tokyo. The BOJ has been in focus as of late due to the strengthening of the yen which has led to speculation that the BOJ could intervene to weaken the currency. The most recent poor inflation data for May also puts pressure on the BOJ to ease monetary policy further. Investors will be listening for any clues concerning monetary policy action.

Friday brings the main event for the week which is the US labor report where the headline NFP number is expected to bounce back from a dismal showing in May. Current expectations are for a 180K gain for June. Wages are forecast to show a 0.2% increase, the same as last month, and the unemployment rate is expected to tick up to 4.8% after a 3 tenths plunge in May. While an as expected print or a beat on these figures would keep the USD supported, they would not likely have much of an impact on policy expectations at this point. They would however provide some needed positive news and talking points for the Fed. The USD is likely to already be supported heading into the release on the back of positive expectations, as well as weakness in the GBP and EUR. On the flip side, back to back misses on these figures would almost certainly pressure the USD significantly, and raise more questions about the actual health of the US economy and the Fed’s decision to begin raising rates.

Other Forex news trading events taking place this week can be found here: Forex Factory Calendar.

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