Week of July 11

This week the Prime Minister resigned, the euro broke lower, hitting parity versus the Swiss franc. In the week ahead, Q2 US earning season kicks off with the big banks.

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The week in review

Political upheaval in the UK dominated a lot of the coverage last week, as Boris Johnson went through a protracted process that left him submitting his resignation on Thursday. 

Cable hit $1.1875, which remains near support with resistance at $1.2025. This was the lowest it had been since the start of the pandemic. On the other hand, the FTSE 100 remained green in line with broader European markets but maintained a consolidatory nature between 6965 and 7365.

The ECB announced measures to deal with fragmentation, which helped soothe peripheral yields, but questions remain ahead of the next interest rate policy meeting. PMIs came in modestly above expectations, helping return some risk appetite to the markets through the end of the week. 

EUR/USD has seen massive outflows and fell less than 100 pips from parity ($1.01). Major resistance lies comfortably away near $1.035, but $1 looks increasingly inevitable. 

Top events in the week ahead

Major corporations start reporting

Thursday is the unofficial start of the second-quarter earnings season with JP Morgan and Morgan Stanley reporting before the open. Then on Friday, Wells Fargo and Citigroup also join in. Major banks are expected to have had upbeat performance thanks to higher interest rates. But they aren't the only major companies reporting this week. Other names traders might be looking for include UnitedHealth, Ericsson, and PepsiCo.

China’s GDP in sight

Possibly the key data release of the week falls on Friday: China's Q2 GDP figures. As the first large economy to report GDP figures for the period, it will get extra scrutiny to see if it can shed light on other major economies. Expectations are low given the extended lockdowns in major cities. The year-on-year growth rate is expected to reach 4.8%, with the quarterly figures at 1.3%.

US inflation poses risk

On Wednesday, another major data point of the week will be released; the US CPI. Inflation is expected to tick up another decimal from the multi-decade high of 8.6% reported last month. That is followed by PPI on Thursday, with both figures expected to be pivotal to confirming or potentially shaking confidence in whether the Fed will hike by 75bps at its next meeting. The US dollar index has found a temporary top neat 107.50 with 108 being the next major test for bulls. 

Before that, on Thursday the BOC is expected to raise rates by 75bps. USD/CAD could break the next resistance 60 pips above current levels at $1.3080, but could equally slide through $1.28 and below.

Geopolitics can break the monotony

After Johnson's resignation as party leader but staying on as caretaker PM, the Northern Ireland Protocol issue is in limbo. The Eurogroup will meet on Monday. Germany will shut Nordstream 1 for two weeks for scheduled maintenance. 

OPEC is to release its monthly report as traders look to see if there is a new agreement on raising production. WTI crude oil could fluctuate around the $100/bbl level for a little while until further clarity is provided.

Other events

ZEW publishes Economic Sentiment for Germany on Tuesday. Wednesday has China's balance of trade and May GDP from the UK. On Thursday Australia reports employment data. And Friday sees US retail sales as well as flash Michigan Consumer Sentiment indicator.