Welcome to the "Week Ahead" trading blog for beginners in forex and CFDs, where we aim to make things simple and straightforward. In this blog, we'll be discussing the key events and themes that traders should focus on in the coming week.
The Week That Was:
Last week, the US dollar index saw a technical correction, rising above 100, as the market prepared for the upcoming FOMC meeting, GDP, and PCE inflation reports.
In the UK, lower-than-expected inflation data pushed GBP/USD below 1.30, reducing expectations of a 50bp BOE rate hike. Australia delivered another strong employment report, putting pressure on the Reserve Bank of Australia (RBA) to potentially hike rates in August. New Zealand's CPI came in higher than expected, leading to speculation that the Reserve Bank of New Zealand (RBNZ) might resume rate hikes. However, some doubts remain as the economy is technically in a recession.
The ECB hinted that its interest rate decision in September would be data-dependent, signalling less certainty about a rate hike. China's GDP data was softer than expected, impacting Asian indices, which were hoping for further stimulus. Japan's nationwide inflation also fell below expectations, possibly dampening hopes of a policy change.
The Week Ahead (Calendar):
The upcoming week offers a line-up of important events and economic indicators that could add volatility to the supposedly quiet summer months.
1. FOMC Meeting
2. ECB Meeting
3. BOJ Meeting
4. US PCE Inflation
5. Australian CPI and PPI
6. Michigan Consumer Sentiment Survey
7. Flash PMIs
8. German Ifo Business Situation
The FOMC meeting takes centre stage, with a 99.6% chance of a 25bp rate hike. Traders will be looking for clues about whether this will be the last hike of the cycle or if more rate increases are expected. The Fed's stance on future rate hikes, along with economic indicators, could impact risk sentiment and various currencies and commodities.
Investors should also pay attention to core inflation figures during the FOMC meeting. Core inflation, as measured by the PCE index excluding volatile food and energy prices, provides a clearer picture of underlying inflation trends. A soft core inflation reading could influence the Fed's decision-making process, potentially affecting their outlook on future monetary policy adjustments.
Similar to the Fed, the ECB is widely expected to hike rates by 25bp, but uncertainty remains about future hikes beyond this meeting. Core inflation in the Eurozone has been higher than expected, which may influence the ECB's decisions. The central bank may remain data-dependent and cautious in its messaging.
**BOJ Meeting and Tokyo Inflation:**
The Bank of Japan is not expected to hike rates, but traders will be watching for any signs of changes to their ultra-loose policy. Tokyo inflation data on Thursday could provide insights into the BOJ's future actions.
US PCE Inflation and Q2 GDP:
Following the FOMC meeting, the subsequent GDP and PCE inflation reports will shape expectations for the Fed's August meeting. If core inflation remains stable while headline inflation cools down, the Fed may interpret it as transitory factors at play. This could impact their view on future rate hikes.
**Australian Inflation Reports (Quarterly and Monthly):**
Australia's strong employment numbers have increased the likelihood of an RBA rate hike. Next week's inflation reports will be closely watched, especially the quarterly data, to gauge the potential for an August hike.
Investors should pay attention to both headline and core inflation figures in Australia. Core inflation strips out volatile items, providing a more accurate indication of underlying price pressures. A higher-than-expected core inflation reading could strengthen the case for an RBA rate hike, potentially boosting the Australian dollar and impacting equity markets.
Other Key Events:
Next week, Federal Reserve officials will gather for a two-day policy meeting starting on Tuesday, with an interest rate decision expected on Wednesday. Earnings season will also enter one of its busiest weeks, with major companies like Microsoft, Meta Platforms, Google parent Alphabet, Visa, Mastercard, Texas Instruments, Coca Cola Company, McDonald’s, Boeing, AT&T, Verizon, Ford Motor Company, Chevron, and ExxonMobil set to report. Additionally, the advance estimate for second-quarter gross domestic product (GDP) will be released on Thursday, followed by the Personal Consumption Expenditures (PCE) Price Index—the Fed’s preferred inflation gauge—on Friday. Updates on home prices, new and pending home sales for June will also be released.
Big Tech Earnings:
Next week will be among the busiest of the earnings season, with the spotlight on big tech companies. Microsoft and Google parent Alphabet will report their earnings on Tuesday, and Meta Platforms will follow on Wednesday. Other widely held companies scheduled to report include Visa, Mastercard, Texas Instruments, The Coca Cola Company, McDonald’s, Boeing, AT&T, Verizon, Ford Motor Company, Chevron, and ExxonMobil, among many others.
July FOMC Meeting:
On Tuesday, Federal Reserve policymakers will gather for the two-day meeting of the Federal Open Market Committee (FOMC), with an interest rate decision and press conference featuring Chair Jerome Powell scheduled for Wednesday. A majority of traders expect the Fed will hike interest rates by 25 basis points (bps), in what will likely be the 11th and final rate hike of the current tightening cycle.
Second Quarter GDP Figures:
On Thursday, the Bureau of Economic Analysis (BEA) will issue the advance estimate for second-quarter gross domestic product (GDP). The U.S. economy likely expanded 1.1% in the second quarter, exceeding initial projections of 0.6% growth.
The Fed's Preferred Inflation Gauge:
On Friday, the BEA will release the Personal Consumption Expenditures (PCE) Price Index—the Fed’s preferred inflation gauge—for June. Prices are projected to have risen 0.1% last month, at the same pace as May. Price gains likely decelerated sharply to an annual rate of 2.9% from 3.8% in May, edging closer to the Fed’s 2% target. Core prices, which exclude volatile food and energy costs, likely rose 0.2% from May, and 4.3% from a year earlier.
The PCE Price Index is the Fed’s preferred inflation gauge as it more closely tracks consumers’ spending decisions than the Consumer Price Index (CPI), while the basket of goods comprising the index is updated more frequently.
Trading Blog, Events Calendar:
Here are some of the key events and earnings reports to keep an eye on next week:
*Monday, July 24:*
- Cadence Design Systems Inc. (CDNS), NXP Semiconductors (NXPI), Ryanair Holdings (RYAAY), Brown & Brown Inc. (BRO), Domino’s Pizza (DPZ), and Crown Holdings Inc. (CCK) report earnings
- Chicago Fed National Activity Index (Jun)
- S&P Global Composite PMI - Flash Estimate (Jul)
*Tuesday, July 25:*
- Microsoft (MSFT), Alphabet Inc. (GOOGL; GOOG), Visa (V), Texas Instruments (TX
N), Raytheon Technologies (RTX), Verizon Communications (VZ), General Electric (GE), UBS (UBS), 3M Company (MMM), and Ford Motor Company (F) report earnings
- S&P Case-Shiller National Home Price Index (May)
- Federal Housing Finance Authority (FHFA) House Price Index (May)
- Conference Board (CB) Consumer Confidence Index (Jul)
- Richmond Fed Manufacturing Index (Jul)
- Day 1 of July 2023 FOMC Meeting
*Wednesday, July 26:*
- Meta Platforms (META), The Coca-Cola Company (KO), Thermo Fisher Scientific (TMO), Union Pacific Railroad (UNP), Boeing (BA), Automatic Data Processing Inc. (ADP), AT&T (T), Chipotle Mexican Grill (CMG), Stellantis (STLA), and O’Reilly Automotive (ORLY) report earnings
- New Home Sales (Jun)
- Day 2 of July 2023 FOMC Meeting; Interest Rate Decision and Press Conference
*Thursday, July 27:*
- Mastercard (MA), AbbVie (ABBV), McDonald’s (MCD), Shell (SHEL), Linde (LIN), Comcast (CMCSA), T-Mobile (TMUS), Intel (INTC), Honeywell International (HON), and S&P Global Inc. (SPGI) report earnings
- U.S. GDP Growth Rate - Advance Estimate (Q2 2023)
- U.S. Goods Trade Balance (Jun)
- Durable Goods Orders (Jun)
- Wholesale Inventories (Jun)
- Retail Inventories Excluding Autos (Jun)
- Kansas City Fed Composite Index (Jul)
- Pending Home Sales (Jun)
*Friday, July 28:*
- ExxonMobil (XOM), Procter & Gamble (PG), Chevron (CVX), AstraZeneca (AZN), Sanofi (SNY), Aon (AON), Colgate-Palmolive (CL), Charter Communications (CHTR), Centene Corp. (CNC), and T-Rowe Price Group (TROW) report earnings
- Personal Income and Spending (Jun)
- Personal Consumption Expenditures (PCE) Price Index (Jun)
- Michigan Consumer Sentiment Index - Final Reading (Jul)
These events and themes are crucial for traders in the forex and CFD markets, and they may lead to significant movements in currency pairs, commodities, and indices. Traders should carefully analyse the data, central bank decisions, and earnings reports, including core inflation figures, to make informed trading decisions.
*Note: This information is provided for informational purposes only and does not constitute investment advice. Always do your own research and consult with a professional financial advisor before making any investment decisions.*
Good luck and happy trading!
Kyriacos Kyriacou, experienced trader, broker, and educator in forex. He has a B.A. in Economics from Liverpool University and an M.S. in Marketing from Surrey University