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All eyes will be on the Federal Reserve meeting next week. A triple-barreled rate increase is essentially locked in, so traders will put more emphasis on Powell’s commentary and the upcoming GDP report that will reveal whether America is in a technical recession. Over in Europe, there’s another round of inflation data coming up, although the euro might care more about the unfolding political crisis in Italy. 

All eyes will be on the Federal Reserve meeting next week. A triple-barreled rate increase is essentially locked in, so traders will put more emphasis on Powell’s commentary and the upcoming GDP report that will reveal whether America is in a technical recession. Over in Europe, there’s another round of inflation data coming up, although the euro might care more about the unfolding political crisis in Italy. 

Summary United States: Housing Slump Underscores Rising Risk of Recession Higher mortgage rates continue to drag on housing activity. The NAHB Housing Market Index plunged 12 points to 55 in July. June brought a 5.6% drop in existing home sales as well as a 2.0% decline in housing starts. Initial jobless claims rose to 251K during the week of July 16. The Leading Economic Index (LEI) slipped 0.8% in June, the fourth straight monthly drop. Next week: Durable Goods (Wed.), Q2 U.S. GDP (Thurs.), Personal Income & Spending (Fri.) International: ECB Exits Negative Interest Rates The ECB delivered a larger-than-expected 50 bps Deposit Rate increase, exiting its negative interest rate policy and taking the Deposit Rate to 0.00%. The other key policy interest rates were also lifted by 50 bps, taking the refinancing rate to 0.50% and the marginal lending rate to 0.75%. Next week: Japan (Tokyo) Inflation (Thurs.), Central Bank of Colombia (Fri.), Eurozone Q2 GDP (Fri.) Interest Rate Watch: The FOMC to Deliver Another Jumbo 75 bps Hike The blistering June CPI report raised the chance that the FOMC could deliver a 100 bps hike at next Wednesday's meeting. However, with data since then showing the economy continues… Read More »Weekly economic and financial commentary

Volatility was the winner overnight, with a multitude of data points and events leaving market price action messier than a teenager's bedroom. The European Central Bank surprised markets by lifting policy rates by 0.50%, ending over a decade of negative interest rates. The Euro has already been rallying, but its gains were tempered by the collapse of the Italian government, and post the ECB meeting, German/Italian bond spreads started widening noticeably. The ECB’s Lagarde said policy decisions would be made on a meeting-by-meeting basis going forward, tossing their forward guidance out. Perhaps more importantly, Russian gas started flowing back down the Nord Stream 1 gas pipeline yesterday, albeit at flows resembling the 40% of capacity before it closed for maintenance. Still, when it comes to Europe and energy, any news is good news as fears had risen that Russia would leave it turned off. EUR/USD had already started rallying on this news, which was likely the major reason that oil prices fell overnight in another 5.0% intra-day range session. European equities were far more mixed, with some stark winners and losers. For that, we can thank the Italian political situation, widening North/South bond spreads, and the ECB’s 0.50% rate hike.… Read More »The end of a messy week

Volatility was the winner overnight, with a multitude of data points and events leaving market price action messier than a teenager's bedroom. The European Central Bank surprised markets by lifting policy rates by 0.50%, ending over a decade of negative interest rates. The Euro has already been rallying, but its gains were tempered by the collapse of the Italian government, and post the ECB meeting, German/Italian bond spreads started widening noticeably. The ECB’s Lagarde said policy decisions would be made on a meeting-by-meeting basis going forward, tossing their forward guidance out. Perhaps more importantly, Russian gas started flowing back down the Nord Stream 1 gas pipeline yesterday, albeit at flows resembling the 40% of capacity before it closed for maintenance. Still, when it comes to Europe and energy, any news is good news as fears had risen that Russia would leave it turned off. EUR/USD had already started rallying on this news, which was likely the major reason that oil prices fell overnight in another 5.0% intra-day range session. European equities were far more mixed, with some stark winners and losers. For that, we can thank the Italian political situation, widening North/South bond spreads, and the ECB’s 0.50% rate hike.… Read More »The end of a messy week

The ECB 50bp rate hike brings volatility, but dollar strength fails to go away. Meanwhile, the reopening of the Nord Stream gas pipeline has sent energy markets lower across the board. ECB hike beats expectations, with euro weakness a risk to inflation “Volatility has been the name of the game this afternoon, with Cristine Lagarde announcing an unexpected 50 basis point rate hike in a bid to stabilise the euro and stave off inflation. Unfortunately for EURUSD bulls, today’s rate rise does still keep us on track to see US-eurozone interest rates diverge given the 83% expectations of a 75-basis point hike from the Fed next week. With Lagarde’s predecessor Mario Draghi hitting the news today, it is interesting to see how we are currently in a position where the ECB want to drive the euro higher rather than the bearish jawboning undertaken back in Draghi’s day. While a weak euro can help raise demand for eurozone businesses, the ECB will be well aware of its role in raising inflation as imports become increasingly expensive.”  Energy prices slump as fears of a Russia gas shutdown ease somewhat “Fears that Russia will keep the gas pumps shut after the 10-day Nord… Read More »Oversized ECB hike fails to turn the tide on EURUSD

The ECB 50bp rate hike brings volatility, but dollar strength fails to go away. Meanwhile, the reopening of the Nord Stream gas pipeline has sent energy markets lower across the board. ECB hike beats expectations, with euro weakness a risk to inflation “Volatility has been the name of the game this afternoon, with Cristine Lagarde announcing an unexpected 50 basis point rate hike in a bid to stabilise the euro and stave off inflation. Unfortunately for EURUSD bulls, today’s rate rise does still keep us on track to see US-eurozone interest rates diverge given the 83% expectations of a 75-basis point hike from the Fed next week. With Lagarde’s predecessor Mario Draghi hitting the news today, it is interesting to see how we are currently in a position where the ECB want to drive the euro higher rather than the bearish jawboning undertaken back in Draghi’s day. While a weak euro can help raise demand for eurozone businesses, the ECB will be well aware of its role in raising inflation as imports become increasingly expensive.”  Energy prices slump as fears of a Russia gas shutdown ease somewhat “Fears that Russia will keep the gas pumps shut after the 10-day Nord… Read More »Oversized ECB hike fails to turn the tide on EURUSD

EUR/USD witnessed some selling on Wednesday and snapped a three-day winning streak. The resumption of the Russian gas supply assisted the pair to regain traction on Thursday. The focus remains glued to the crucial ECB policy decision, due to be announced later today. The EUR/USD pair retreated from the 1.0275 area, or a two-week high touched earlier on Wednesday and ended the day in the red, snapping a three-day winning streak. The energy crisis grabbed the headlines after Russian President Vladimir Putin warned that supplies sent via the biggest pipeline to Europe could be reduced further and might even stop. The European Union told member states to cut gas usage by 15% until March as an emergency step, which, in turn, revived recession fears and weighed on the shared currency. This, along with a goodish US dollar rebound from its lowest level since July 6, exerted some downward pressure on the major. Global equity markets, so far, have struggled to carry the positive mood witnessed during the first half of the currency week amid the worsening global economic outlook. Adding to this, elevated US Treasury bond yields assisted the safe-haven USD to stall its recent sharp pullback from a two-decade… Read More »EUR/USD Analysis: Flirts with descending channel resistance ahead of crucial ECB decision

The Bank of Japan will likely maintain its monetary policy unchanged, but tapering is not far away. Japanese inflation surged above 2% YoY in May for a second consecutive month. USD/JPY remains near a multi-decade high and may extend its rally to 140.00. The Bank of Japan will announce its monetary policy decision on Thursday, July 21. The central bank is one of the last to maintain its ultra-loose monetary policy and seems to be in no rush to hike rates. Governor Haruhiko Kuroda warned of “very high uncertainty” over the economic outlook just last week and repeated the central bank is ready to ramp up stimulus as needed to underpin a fragile recovery. Still on-hold Kuroda, whose term ends next April, can afford an accommodative monetary policy as Japan has avoided rampant inflation. On the contrary, the country has spent decades struggling with deflation. According to the latest official figures, the annual inflation rate stood at 2.5% in May, its highest in over seven years and above the BOJ’s 2% target for a second consecutive month. Interest rates turned negative in 2016 and are expected to remain set at -0.10%. Japanese policymakers will also maintain the yield curve control,… Read More »BOJ Preview: Still on hold, but for how long?

Stock markets are understandably choppy so far this week, as Europe posts small gains with Italy being the outlier up more than 1%. It's shaping up to be a critical week for Europe, with Brussels nervously waiting to see whether gas flows will resume following the completed maintenance of Nord Stream 1 on Thursday. That's the same day that the central bank will be weighing up a 25 or 50 basis point rate hike to combat soaring inflation in the bloc. There were already massive doubts about whether flows would resume, with many suggesting Russia could be prepared to ramp up the weaponisation of energy in response to Western sanctions. There's been plenty of occasions over the last year when Russia has claimed it hasn't politicised energy supplies with Europe, something many would speculate isn't the case and later this week, that could become extremely clear. In calling a force majeure dating back a month yesterday, Gazprom may have laid out how it plans to delay the resumption of flows which the European Commission expects to happen. Not that the company or the Kremlin would be hoping to fool anyone, it's simply a legal exercise but it could set the… Read More »Choppy trade ahead of ECB