Greece Votes “No” Ahead of Central Bank Decisions

The victory of the Greek “no” vote in Sunday’s referendum impacted markets as soon as the Asian session started. Traders started pricing in the developments over the weekend with a new round of negotiations due to start as Greece is in dire need of cash to keep its financial system afloat.

Central banks around the world will be on alert to the effects of possible contagion. The Reserve Bank of Australia (RBA) and the Bank of England (BoE) will take center stage this week, and while no change in benchmark interest rates are expected, the comments from policy members will carry weight as market participants look for direction.

The Federal Reserve will publish the minutes from the June Federal Open Market Committee (FOMC) meeting on July 8, adding more insight into the growth forecasts and expectations from the American central bank. Employment indicators in Australia, the U.S., and Canada will be released, and these will have implications on central bank actions as rate cuts are expected from the commodity producers, while the U.S. plans to hike rates could be derailed if employment starts to weaken.



Monday, July 6
10:00 a.m. CAD Ivey PMI
10:00 a.m. USD ISM non-manufacturing PMI
6:00 p.m. NZD NZIER business confidence

Tuesday, July 7
12:30 a.m. AUD cash rate
12:30 a.m. AUD RBA rate statement
4:30 a.m. GBP manufacturing production, month-over-month
8:30 a.m. CAD trade balance
8:30 a.m. USD trade balance

Wednesday, July 8
8:30 a.m. CAD building permits, month-over-month
8:30 a.m. GBP annual budget release
2:00 p.m. USD FOMC meeting minutes
9:30 p.m. AUD employment change and unemployment rate
9:30 p.m. CNY consumer-price index, year-over-year

Thursday, July 9
7:00 a.m. GBP official bank rate
Tentative GBP MPC rate statement
8:30 a.m. USD unemployment claims

Friday, July 10
8:30 a.m. CAD employment change and unemployment rate

Central Banks to Sweet Talk Contagion Fears

Central banks around the world are now tasked with dealing with the rising probability of a Greek exit from the eurozone. The European Central Bank (ECB) is at the forefront as it must make tough choices this week regarding liquidity to Greek banks.

Chief MarketPulse Analyst Dean Popplewell wrote of the Greek referendum aftermath:

Capital markets were expecting a narrow “yes” victory in Sunday’s Greek referendum, the restart of negotiations with its creditors, and the likely end to Prime Minister Alexis Tsipras’s government. Instead investors are faced with a resounding “no” vote victory (61.3% to 38.7%).

European leaders are now preparing to hold an emergency summit tomorrow while accepting an olive branch from Greece — Greek Finance Minister Yanis Varoufakis resigned. That could possibly pave the way for trust in potential future European Union-Greece discussions.



The RBA is not expected to make a change to its benchmark interest rate at record low of 2%, but central bank Governor Glenn Stevens has a chance to use rhetoric to depreciate the Aussie dollar. Stevens has said that the central bank is open to more rate cuts. Australian growth has stalled as the price of commodities are under pressure as demand from China has slowed down. Annual inflation in Australia rose slightly to 1.5% in June as is well within the 2% RBA target.

The Fed will release the minutes of the FOMC meeting in June on July 8. A rate hike was at one point expected in that meeting until U.S. economic indicators started to soften, and the rise start of interest rates expectation was pushed back to September. They might move further back after a disappointing nonfarm payrolls report last week. The USD has gained across the board after the wave of uncertainty in the wake of the Greek referendum, but the economy has failed to convince investors that the factors that hit first quarter results are no longer an issue.

The BoE’s chief economist stated last month that an interest rate rise could derail the recovery of the economy. Monetary Policy Committee member Andy Haldane was one of the first to apply the brakes on optimism in the fall of 2014 when the BoE was seen as the central bank most likely to raise rates. The surprising recovery was about to hit a slowdown period that was well-forecast by economists at the BoE.

The BoE got a lot of flack for missing the early sings of the recovery and continued to issue dovish messages, but as one of the recent appointees, Haldane has once again given the Old Lady some of the lost credibility back. Strong U.K. service activity has reignited talk of a sooner rather than later timing, but it will be interesting what the BoE has to say on Greece and the eurozone, and how it will affect the British economy.

Central bank events to watch this week:

Tuesday, July 7
12:30 a.m. AUD cash rate
12:30 a.m. AUD RBA rate statement

Wednesday, July 8
2:00 p.m. USD FOMC meeting minutes

Thursday, July 9
7:00 a.m. GBP official bank rate

*All times EDT. For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar.

US Employment Strengthens while Australia, Canada Face Hurdles

 

Australia, Canada, and the U.S. will release important employment indicators this week. Australia’s employment is expected to be flat after the surprising growth last month of 42,000 jobs when the forecast called for 12,100. Analysts have called the job acceleration unsustainable until there is growth again in the mining sector.



Canada also impressed last month with 58,900 new jobs when the forecast was for only 10,200. The expectation this week is for a contraction of 4,500 jobs in the lower end of the range that could go up as much as 20,000 lost positions. The Canadian unemployment rate is expected to rise to 6.9%, and the pressure is on the Bank of Canada for a rate cut before the end of the year as the economy falls further behind the growth target of 1.9%.

U.S. unemployment claims will be released on July 9. Last week the claims rose to 281,000, but the fact that the figures have remained below 300,000 since March point to a strong employment component that is the pillar of the Fed’s interest rate hike plans this year. Unemployment claims are forecast to come in at 277,000 on this week’s release.

Employment events to watch this week:

Wednesday, July 8
9:30 p.m. AUD employment change

Thursday, July 9
8:30 a.m. USD unemployment claims

Friday, July 10
8:30 a.m. CAD employment change

*All times EDT. For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza