The Week Ahead: Leads and Lagarde

Foreign Exchange: The Week Ahead
Leads and Lagarde
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Andrew Kositkun
Andrew Kositkun
Foreign Exchange Head Trader
After a period where trade dominated the market narrative, economic data and central bank policies took center stage this past week.    

Of particular note was the jobs report in the US that showed a strong rebound in hiring after a soft employment report last month.  This robust jobs report seemingly eliminates the possibility of the Fed cutting 50 bps at its meeting this month and raises the possibility it doesn’t cut at all.  Expect markets to be focused on Jay Powell’s testimony to Congress next week for clues on the implications of this strong jobs report. 

As we have discussed in prior commentaries, absent a trade war, the economic data doesn’t support the aggressive Fed rate cut path that markets have priced in.  As such, expect the market’s focus to swing back to trade talks as the US and China are expected to formally resume negotiations next week.  While the G20 has reset talks, it is important to remember that the fundamental differences between the two nations remain unresolved.  Of course, this isn’t to say that the Fed will only be about data.  President Trump has stepped up the frequency and intensity of his criticism of the Fed, opening up the possibility for further escalation in verbal intervention and adds another headwind to the USD. 

Over in Europe, Christine Lagarde has been nominated to succeed Mario Draghi as head of the ECB.  While a surprise choice, the markets have welcomed the selection.  Based on her comments on the Eurozone and the global economy, Lagarde appears to be supportive of the ECB’s easing policies.  However, should further easing from the ECB be required, Lagarde will likely have to build consensus as the ECB is running up against many red lines.  But in the near term, the EU Commission’s decision not to take disciplinary action against Italy does provide some breathing room for the euro as it removes a key risk from the short term picture. 



A strong US jobs report has thrown into doubt the Fed rate cut narrative.  Because of the report, combined with continued poor economic data out of Europe, expect the euro to be pressured weaker.  However, the EU Commission’s decision not to take action against Italy does provide a bit of near term relief.  


A poor run of economic data illustrates the continued drag that Brexit is having on the currency.  Concerns over UK growth was enhanced by comments from BoE governor Carney as he acknowledged lower growth outlooks. We remain bearish the GBP and expect the markets to become increasingly focused on the race for PM as we get close to the week of July 22.  


A retracement in Fed cut expectations due to strong employment data in the US pushed USDJPY to a new high for the month.  With US rates a key driver for the yen, keep an eye on Jay Powell’s Congressional testimony and the Fed minutes next week.  Continue to expect the JPY to track US – Japanese interest rate differentials and to weaken or strengthen on the back of the G20 meeting with regards to “risk-on” or “risk-off” trading.


The CAD has been the top performing G10 currency over the past month.  Given the string of positive employment reports, the most recent soft jobs data likely doesn’t change the BoC’s path especially in light of strong wage growth.   The BoC is expected to remain on hold.  On its own, this likely doesn’t move USDCAD but could pressure CAD stronger when compared to next week’s dovish Fed minutes.


Strong inflows into Chinese bonds as well as a trade truce with the US has provided support for the CNY.  Trade talks with the US are expected to officially kick off this week.  As such, expect trade headlines to drive the currency near term.  


Conditional RBA guidance and rising iron ore prices have provided support for the AUD.  However, calls from the Chinese Iron and Steel Association to the government to control prices has cut into these price gains.  Lackluster retail sales illustrates the challenges facing the domestic economy.  We expect the AUD to trade lower. 


7/10 Canada Expectations for rates to remain unchanged at 1.75%


United States and Canada

7/12 US CPI Expectations for 0.0% MoM change
7/10 US PPI Expectations for 0.1% MoM increase 
7/9 Canadian Housing Starts Expectations for a 208.6k print


7/12 EU Industrial Production Expectations for a 0.2% MoM increase
7/10 German CPI Expectations for a 0.3% MoM increase
7/10 UK Industrial Production Expectations for a 1.5% MoM increase

Asia/Japan, and New Zealand 

7/9 Chinese CPI and PPI Expectations for a 2.7% and 0.3% YoY increase, respectively
7/9 Chinese Trade Balance Expectations for an increase to $45.25 billion
7/9 Japanese PPI Expectations for a 0.4% YoY increase
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