Weekly Forecast – June 19
There are relatively few high-profile economic events this week with markets looking for direction in comments from central bank officials together with UK and EU politicians. There is scope for limited dollar gains and net Sterling losses, but market timing will be a crucial factor in the week ahead. There will be value in selling Sterling rallies.
There are only limited US economic data releases during the week with existing home sales and new home sales data on Wednesday and Friday respectively.
Commentary from Fed officials will continue to be monitored closely for further rhetoric on interest rates, a continuing trend from last week, and for evidence on potential splits within the committee.
While there are expectations of further increases in US interest rates, the dollar should maintain a relatively firm tone on economic grounds, but doubts make strong dollar gains unlikely.
The US political developments will be watched closely during the week once again as the special counsel continues his probe into Russian involvement in the 2016 US election. If President Trump is formally accused of obstructing justice, the dollar would be vulnerable to sustained selling pressure. If it happens, there might be an opportunity to sell your CAD.
Political developments will continue to play an extremely important role during the week.
The Brexit negotiations are due to start on Monday amid a mood of major uncertainty surrounding the UK negotiating stance while the Prime Minister remains under intense pressure amid speculation over a leadership challenge, after the shocking election results.
Sterling volatility is likely to remain a key feature given the political and economic uncertainty with markets having very little confidence in the medium-term currency direction.
Speculation over a transition period before any full EU exit could support Sterling, but the underlying uncertainty will remain a negative influence on the currency.
Commentary from Bank of England officials will remain an important focus during the week with Governor Carney’s delayed Mansion House speech on Tuesday.
As far as economic data is concerned, the latest flash PMI data will be released on Friday and will have a significant impact on ECB expectations.
Markets will be expecting the central bank to remove some policy accommodation within the next few months, but there will still be the risk of a frustrating wait for actual action to take place.
Oil prices will continue to have an important impact during the week. Equity markets will also be an important focus after recent volatility and losses in the technology sector.
The Reserve Bank of New Zealand will announce its latest monetary policy decision with interest rates expected to remain at 1.75%.
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