Week Ahead of July 25

After the ECB surprised with a bigger rate hike, attention is now on the Fed and whether it plans a surprise big hike of its own. Elsewhere UK banks and US big tech companies report Q2 earnings.

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The week in review

• The ECB hiked rates by 50bps and announced its much-anticipated anti-fragmentation program, now dubbed "Transmission Protection Instrument". The EUR/USD initially had a positive reaction to $1.028 but faded following the publication of TPI details and eyes the support of $1.015 next.
• Italian PM Draghi again tendered his resignation, this time for good, prompting the President to call for elections.
• Russia restarted shipments of gas through Nord Stream 1, but at a lower level as another maintenance period might be scheduled. Gas prices hit a weekly high at $8 and could move to $8.70 so long it trades above $7.20.
• The UK reported another increase in the Inflation rate, though the core rate retraced a bit. GBPUSD bulls keep fighting around $1.20, but with a double top at $1.205, there’s a growing chance of legging downward. $1.19 and $1.18 make good support.

TOP events in the week ahead

Will the Fed surprise to the upside?

The Fed meets on Tuesday and Wednesday, with a pretty strong consensus that there will be another rate hike of at least 75bps. Although officials have pushed back on speculation that 100bps was in the cards, almost a third of economists are forecasting a "quadruple" rate hike.

Even if the Fed goes with what’s expected, there could be another surprise: the economic outlook. With so much talk of a recession, it would be an important step to see if the Fed starts bending the rate trajectory downward. A dovish note about the trajectory of the economy could catch the market by surprise.

US Q2 GDP

And we can't forget that the day after the Fed meets, US second-quarter GDP will be made public. After a negative reading in the first quarter, if this one comes in negative, it would mean the US is already in a recession. The US dollar index has started to price in some risk as 109.30 formed a top before sliding down to 106 territories.105.80 and 105.00 are major supports, whereas inversely, 107.50 and 108.60 are possible resistance levels.

Geopolitical risks still lurk

Uncertainty remains about gas supplies from Russia to Europe, following another round of sanctions imposed by the EU. In China, Shenzhen is expected to go through another period of lockdowns, as boycotts of mortgage payments get more coverage. After over 6 months of double-digit declines in contracted sales, there are increasing concerns about systemic risk emanating from China’s housing market. Oil has been fluctuating between $96 and $104, with breaks beyond revealing $106 and $112 on the upside and $90 below.

Employment and inflation data

On Tuesday, the US reports the Case-Schiller index. On Wednesday Australia discloses Q2 CPI figures. On Thursday, Germany will announce preliminary July HICP figures, and the US discloses Q2 PCE prices. Friday is quite busy, with Tokyo CPI, Australia PPI, German Employment, and Eurozone Flash PMI all coming out. Switzerland reports retail sales, and Canada reports GDP for May. The US also announces the final July Michigan sentiment index.

Earnings season will be near its peak during the coming week, with major names including UBS, General Electric, Meta, Volkswagen, Pfizer, HSBC, and ExxonMobil.