Week Ahead of July 18

The week ahead sees the ECB sets interest rates days after EURUSD hit parity for the first time in 20 years. The BOJ meeting is also on tap after a shock Bank of Canada 1% rate hike this week. 

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The week in review

• The euro reached parity with the US dollar (EURUSD = 1.0) for the first time since 2002. 
• In the UK, the Tories continue the process of selecting a new leader and therefore PM, with ex-Chancellor Sunak leading, followed by ex-Defense chief Mordaunt
• Unexpectedly hot inflation in the US in combination with the Bank of Canada’s shock 1% rate hike saw traders pricing in the same-sized hike by the Fed at the end of the month
• US banks reported Q2 results and JPMorgan shares dropped after it chose to bolster reserves ahead of what CEO Diamond had called a "hurricane" coming to the markets
• The yield curve inverted for a second time this year and to the largest degree since the turn of the century in 2000.
• Italian PM Draghi tendered his resignation after losing a key ally over a debate about a spending package, but the President refused to accept it.

The week ahead

ECB in focus as rate chances evidently increase

The Euro is oscillating around parity to the dollar ahead of the ECB's policy meeting on Thursday. There was already concern about how the bank would deal with the deviation in interest rates between the "north" and the "periphery", in what it calls "fragmentation". 

But the increased political uncertainty in Italy raises the stakes. The Euribor also turned positive for the first time in years, suggesting traders do expect a rate hike. But by how much is still an open question, as well as what kind of effect the potential anti-fragmentation mechanism will have. The Euro is likely to remain under pressure, with no scheduled major data releases in Europe that could help provide clues. $0.99 and $1.01 are major levels for the upcoming week.

Russia to cut-off gas

The ten-day maintenance period on the Nordstream 1 pipeline ends on Thursday, and will confirm fears or relieve marks about whether Russia will keep supplying Europe with gas. On Wednesday, Fed members enter a blackout period ahead of the meeting at the end of the month. Natural gas prices could rise further, with resistance observed at $7 and $8. On the downside, support lies at $6 and $5. 

UK inflation

The UK will also publish its June CPI figures, which are expected to remain unchanged. GBP/USD has major resistance at $1.20, near-term support at $1.18 and second major support to $1.17 at $1.1630.

Policy rate decisions

BOJ Meeting

Also on Thursday, the BOJ meets for its latest policy decision, where there is a broad consensus that the policy will remain the same. But Kuroda might have to address rising concerns about inflation and the permanence of yield curve control. USD/JPY seems to be heading to JPY 140.00, but it’s unclear whether it form a firm top. Above it, 141 and 142 are round resistances. On the other hand, 137 is swing support. 

Earnings

Earnings are expected to get into full swing next week, with major companies such as Tesla, Netflix and Amazon reporting. Other major firms include Goldman Sachs, IBM and BHP. 

Other events

On Monday New Zealand reports quarterly inflation. Kiwi is likely to revisit the 61c and perhaps even 60c, whereas the upside seems restricted to 62c. 

Tuesday sees UK employment figures; Wednesday has German PPI and Canadian CPI. USD/CAD met strong resistance at $1.32 and it might be hard to get past it, but if it did, $1.33 is major top. Inversely, $1.31 is near-term support, and $1.30 major.

The week closes out with Japanese inflation and major world economy flash PMIs on Friday.