Errante's The Week Ahead: 22nd – 26th July 2024

Errante’s The Week Ahead: 22nd – 26th July 2024

Errante’s The Week Ahead: 22^nd – 26^th July 2024

Highlights of the Week:

Central Bank Insights: Bank of Canada (BoC) expected to cut rates from 5% to 4.75%, impacting the CAD.
Inflation Data: Focus on the Core PCE Price Index, the Federal Reserve’s preferred measure of inflation.
Global PMIs: Flash PMIs from major Eurozone economies and the UK will provide key insights into economic health.
US Economic Indicators: Advance GDP and Unemployment Claims data.

Welcome to another insightful edition of the Errante Weekly Newsletter.

Now What?

As we step into Errante’s The Week Ahead: 22^nd – 26^th July 2024, the financial markets are gearing up for significant events that will likely drive market volatility and influence trading strategies.

This week, the Bank of Canada (BoC) is expected to cut rates from 5% to 4.75% in response to slowing economic growth and persistent inflationary pressures. This anticipated rate cut aims to stimulate economic activity by making borrowing cheaper. However, it could also weaken the CAD as lower rates typically reduce the currency’s yield appeal. Traders should closely monitor the BoC Monetary Policy Report and Press Conference on Wednesday for any forward guidance that might impact CAD pairs.

The upcoming Bank of Canada (BoC) meeting is highly anticipated, with markets and analysts expecting a potential rate cut. Here are the key points and expectations:

Probability of Rate Cut: Market sentiment indicates a high likelihood (around 80%) that the BoC will cut interest rates in the upcoming meeting. This expectation is driven by recent soft economic data, including lower-than-expected GDP growth and easing inflation pressures.
Economic Indicators: The Canadian economy has shown signs of slowing, with recent data indicating a mild contraction in GDP and a slight increase in the unemployment rate. These factors have contributed to the BoC’s consideration of easing monetary policy.
Inflation Trends: Inflation in Canada has been moderating, with the Consumer Price Index (CPI) showing a downward trend. The BoC’s preferred measures of core inflation have also eased, supporting the case for a rate cut.
Housing Market Concerns: One of the concerns for the BoC is the potential impact of a rate cut on the housing market. Lower rates could spur increased activity and drive up housing prices, exacerbating affordability issues. However, the central bank also recognizes the need to balance this with overall economic growth and inflation control.
Future Path of Policy: If the BoC does not cut rates in this meeting, it is expected to adopt a dovish tone, indicating the likelihood of a future cut, possibly in September. The central bank will likely emphasize data dependency, monitoring economic indicators closely before making further decisions

The US Core PCE Price Index, scheduled for Friday, is another critical event. As the Federal Reserve’s preferred inflation measure, it will provide crucial insights into the inflation trend. Current projections indicate a moderation in inflation, which could bolster the case for the Fed to adopt a more dovish stance. According to the CME FedWatch Tool, there is a 59% chance of a rate cut in September if inflation continues to decrease, aligning with the broader trend of falling inflation seen this year.

Market Events and Announcements

The times below are GMT +3.

Monday and Tuesday. July 22 and 23, 2024: (No significant events)

Wednesday, July 24, 2024:

10:15 AM – EUR: French Flash Manufacturing PMI
10:15 AM – EUR: French Flash Services PMI
10:30 AM – EUR: German Flash Manufacturing PMI
10:30 AM – EUR: German Flash Services PMI
11:30 AM – GBP: Flash Manufacturing PMI
11:30 AM – GBP: Flash Services PMI
4:45 PM – CAD: BoC Monetary Policy Report
4:45 PM – CAD: BoC Rate Statement
5:30 PM – CAD: BoC Press Conference

Thursday, July 25, 2024:

3:30 PM – USD: Advance GDP q/q
3:30 PM – USD: Unemployment Claims

Friday, July 26, 2024:

3:30 PM – USD: Core PCE Price Index m/m

Market Insights: Key Charts to Watch

NZD/USD Daily Chart:

NZD/USD is trading in a downtrend below the 100-day moving average. The pair is on track for further declines, having broken the support at 0.60472. Targets for sellers include 0.60184, 0.59817, and 0.59412, otherwise, if buyers defend the support at 0.60184 and push the price back above 0.60472, resistance levels to watch are at 0.60877 and 0.61532.

Key Levels:

Support: 0.60472, 0.60184, 0.59817, 0.59412

Resistance: 0.60877, 0.61532

Impact of Upcoming Events:

The PCE report, the Fed’s preferred inflation gauge, will be highly influential. A lower-than-expected PCE could weaken the USD, offering relief to NZD/USD and potentially supporting a bounce.

Chart 2: CAD/CHF

After a bearish week, CAD/CHF is trading between the weekly resistance at 0.66332 and support at 0.64353. A dovish tone from the BoC, with a rate cut, could weaken the CAD, leading to a break below the support at 0.64353. Immediate targets would be 0.63815, 0.63130, and 0.62374. Otherwise, if the rate cut is less dovish than expected or the CAD finds support, a break above 0.66332 would place the price above moving averages, turning the outlook bullish.

Key Levels:

Support: 0.64353, 0.63815, 0.63130, 0.62374

Resistance: 0.66332

Impact of Upcoming Events:

The BoC’s rate decision and subsequent press conference will be critical. A dovish tone will likely push CAD/CHF lower, while a less dovish stance could support the CAD, limiting further declines.

Errante’s Weekly Newsletter brings you critical market insights to keep you ahead in the financial world. Stay informed and make strategic decisions with Errante.

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