Markets were hit by last week's stronger-than-expected drop in U.S. inflation, triggering a sell-off in the U.S. dollar and buying of risky assets such as stocks and some commodities and currencies as the outlook for rate hikes now becomes brighter. docive.
It is very likely that the difference between success and failure in Forex/CFD trading depends mostly on which assets you choose to trade each week and in which direction, and not on the exact methods you might use to determine trade entries and exits.
So, as you start the week, it's a good idea to look at the big picture of what's developing in the market as a whole, and how those developments are influenced by macro fundamentals, technical factors, and market sentiment. There are several strong long-term trends in the market right now, which could be profitably exploited.
- Market sentiment is completely dominated by the lower-than-expected US CPI (inflation) data, which was released last week, showing a decline in the annualized rate from 4.0% to 3%, below the 3.1% expected. The monthly change was an increase of 0.2%, lower than the expected 0.3%.
Although the US Federal Reserve is still expected to raise rates by 0.25% at its next meeting, consensus for this has lowered and there is more expectation that the next increase will reach the terminal rate within the current tightening cycle. This was reflected in a post-release drop in the 2-year Treasury yield.
The data immediately triggered a sharp sell-off in the US dollar, which was already falling in line with a developing long-term bearish trend and sharp increases in stock markets and some commodities. Risk sentiment has improved considerably and the markets are unquestionably in risk-on mode, which is usually a good opportunity to make money.
The low inflation data was bolstered by lower-than-expected US PPI data released later in the week, which only saw a month-over-month increase of 0.1%, where a rise of 0.2% was expected.
The other major items were the 0.25% rate hike by the Bank of Canada, which strengthened the Canadian dollar even though it was expected, and the passage of a hike by the Reserve Bank of New Zealand, which was also expected.
Markets are likely to start this week in the same risky condition that prevailed at the end of last week.
Other key data releases last week were:
UK GDP – this came in higher than expected, showing a month-on-month decline of 0.1% when a fall of 0.3% was expected, which may have helped the pound strengthen. - Preliminary US UoM consumer sentiment – this came in higher than expected, suggesting a still robust US economy.
- UK Unemployment Claims (Claimant Count Change) – this came in very slightly higher than expected.
The week ahead: July 17 – July 21
Markets next week are likely to see a slightly lower level of volatility than last week, as there will be fewer key data releases expected. This week's major data releases are, in order of importance:
- Chinese GDP and industrial production
- US retail sales
- Canadian CPI (inflation)
- UK CPI (inflation)
- US Empire State Manufacturing Index
- Minutes of the Reserve Bank of Australia monetary policy meeting
- New Zealand CPI (inflation)
- Unemployment claims in the United States
- Australian unemployment rate
Monday will be a public holiday in Japan.
Credit by DailyForex.com
