Market Drivers – US Session, July 21

Mohamed Abdelhamid 22 July, 2023 1:43 am Forex Market, Market Update

The US Dollar experienced a strong rebound from a sharp decline in the previous week, supported by strong economic data. The DXY rebounded from under 100.00 to 101.00, but the outlook remains negative, and the positive results could be seen as a corrective movement.

The Pound underperformed during the week, following a bigger-than-expected drop in UK inflation. However, inflation remains elevated, and more rate hikes from the Bank of England (BoE) are expected.

GBP/USD suffered the worst weekly result since January, retracting from one-year highs above 1.3100 to 1.2850. EUR/GBP posted the biggest weekly gains since January, but it was unable to break above the 20-week Simple Moving Average (SMA) and the 0.8700 area. The cross finished around 0.8650, and risks appear tilted to the upside, but the Euro needs to break and hold above 0.8700.

The Japanese Yen dropped sharply on Friday, after reports suggesting the Bank of Japan won’t signal a change in July. The loonie underperformed among commodity currencies, even after the decline in inflation in Canada. USD/CAD ended flat, hovering around 1.3200/20.

EUR/USD gave up half of last week’s gains after retracting from one-year highs at 1.1275 toward 1.1100. The trend remains bullish, and the decline is seen as a correction. USD/JPY rebounded at the 20-week SMA, rising back above 140.00 and erasing most of the previous week’s losses.

What to watch next week

Australia will release the Consumer Price Index (CPI) for June and the second quarter, a key measure ahead of the RBA’s meeting on August 1st.

The Fed in the United States will announce its monetary policy decision, with a 25-basis point rate hike priced in. The European Central ECB will also announce its decision, with President Lagarde expected to signal more rate hikes. The next ECB meeting is in September, and expectations will be relevant and should weigh on the EUR/USD.

The first reading of US growth performance during the second quarter is due on Thursday, which is expected to expand at an annual rate of 1.6%, below the 2% of Q1. The report includes the Core Personal Consumption Expenditure for the second quarter, the weekly Jobless Claims report, and Durable Goods Orders for June.

The week will also see more companies, including Microsoft, Alphabet, Meta Platforms, and Amazon, report earnings, which could weigh on market sentiment. The focus will be on central banks as the Fed, ECB, and BoJ announce their monetary policy decisions.

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