The Week Ahead in FX (July 12-16): Three Central Bank Decisions Lined Up!

Start your trading week right by prepping for these top-tier catalysts and checking out my potential trade setup.

Don’t forget to review which factors drove forex market price action last week, too!

Major Economic Events:

U.S. CPI figures (July 13, 12:30 pm GMT) – Inflation is a hot topic among market watchers these days, as dollar bulls are waiting for more signs that the Fed could taper stimulus soon.

Headline inflation for June is slated to dip from 0.6% to 0.5% while the core version of the report could fall from 0.7% to 0.4%. Stronger than expected results could continue to fan rate hike hopes while data misses could mean downside for the dollar.

RBNZ monetary policy statement (July 14, 2:00 am GMT) – No actual changes to the 0.25% interest rate are expected, but any hawkish remarks from the New Zealand central bank could boost tightening expectations and the Kiwi.

Recall that RBNZ Governor Orr mentioned that the economy is returning to pre-pandemic levels, hinting that monetary policy might soon be adjusted.

Financial institutions like Westpac and ANZ have moved their rate hike forecasts earlier, with some analysts projecting that the RBNZ could increase interest rates as early as November this year.

BOC monetary policy statement (July 14, 2:00 pm GMT) – No actual changes to interest rates are expected from the BOC as well, especially since the Canadian central bank already reduced its asset purchases last time.

Still, some are expecting to see another reduction in QE, possibly slowing the pace of purchases from 3 billion CAD to 2 billion CAD per week.

Updated economic projections are also due, and these should give Loonie traders clues on the timing of the BOC’s potential rate hike.

Australian jobs report (July 15, 1:30 am GMT ) – After an impressive 115.2K increase in hiring reported for May, Australia could print a meager 20.3K rise in employment for June.

This should be enough to bring the jobless rate down from 5.1% to 5.0% for the month.

Aussie traders would likely pay close attention to full-time and part-time hiring numbers, as well as any notable changes in labor force participation and underemployment figures.

Chinese quarterly GDP (July 15, 2:00 am GMT) – The economy is expected to have grown by 8.1% in Q2 2021, waaay slower compared to the earlier 18.3% expansion.

Keep in mind that business PMI readings have reflected a slowdown in activity over the past three months, likely dragging the overall growth figure down.

New Zealand quarterly CPI (July 15, 10:45 pm GMT) – A slight dip in price pressures is eyed for Q2, as the reading could fall from 0.8% to 0.7% for the period.

Stronger than expected results, however, could keep market participants even more hopeful that the RBNZ is bound to tighten policy soon.

BOJ monetary policy statement (July 16) – The Japanese central bank is expected to sit on its hands and keep policy unchanged. After all, several cities have declared a state of emergency recently on account of fresh outbreaks.

In addition, the BOJ is widely expected to slash its economic forecasts, confirming that it’s nowhere close to reducing stimulus.

U.S. retail sales report (July 16, 12:30 pm GMT) – Headline consumer spending for June could print a 0.5% decline after the earlier 1.3% slump. The core version of the report is expected to rebound by 0.4% after the previous 0.7% drop.

Forex Setup of the Week: NZD/USD

This neat short-term range on NZD/USD is still holding!

Buyers were quick to defend the bottom of the range, likely taking the pair back up to the top near the .7100 major psychological mark.

Will sellers return at the ceiling?

Stochastic is already indicating overbought conditions or exhaustion among buyers, so turning lower would confirm that the range resistance might hold.

Of course this depends on how the RBNZ decision turns out, as a more hawkish tone could set off a bullish breakout. If that happens, NZD/USD could climb by the same height as the rectangle pattern or roughly 150 pips.

The moving averages are still oscillating to reflect consolidation, but the dynamic resistance levels are holding so far.

The upcoming U.S. CPI and retail sales releases might also add to this pair’s volatility, as well as the turnout for the U.S. earnings season.

Generally weak results could keep markets in a sour mood and favor the safe-haven Greenback while upbeat figures could lift the higher-yielding Kiwi.