Week Ahead in FX: Back to Fundamentals After Greek Debt Passes German Hurdle

Central Banks and Manufacturing Data to Guide FX

Five months of indecision and tough negotiations in Europe are coming to an end today with the German parliament vote in favour of starting negotiations with Greece to unlock the much needed bailout package. The Greek parliament had voted into law the harsh austerity measures demanded by creditors on early Thursday and all eyes were on Germany to also vote to proceed with the aid. Angela Merkel held nothing back as she warned of “predictable chaos” to the lawmakers ahead of the vote. The motion passed with 439 MPs in favour, 119 votes against and 40 abstentions.

The European Central Bank (ECB) has already raised the emergency funds and a bridge loan of €7 billion was approved by the European Council. The two measures will allow the Greek banking system to reopen to the public on Monday, although the raising of the capital control measures will be gradual. With the Greek deal volatility passed, the market will now focus on the IMF’s request of granting Greece a haircut on its huge debt. The outcome of the German vote signals that there is plenty of dissent that will make itself heard as those negotiations take shape.

Next week the market expects an interest rate cut by the Reserve Bank of New Zealand to be announced. The Reserve Bank of Australia and the Bank of England will publish the minutes from their monetary policy meetings. Manufacturing preliminary data out of China and Europe will be published as there are questions about China’s statistics and European productivity in the mist of the Greek crisis.

Monday, July 20
8:30am CAD Wholesale Sales m/m
9:30pm AUD Monetary Policy Meeting Minutes

Tuesday, July 21
9:30pm AUD CPI q/q
11:05pm AUD RBA Gov Stevens Speaks

Wednesday, July 22
4:30am GBP MPC Official Bank Rate Votes
5:00pm NZD Official Cash Rate
5:00pm NZD RBNZ Rate Statement

Thursday, July 23
4:30am GBP Retail Sales m/m
8:30am CAD Core Retail Sales m/m
8:30am USD Unemployment Claims
6:45pm NZD Trade Balance
9:45pm CNY Markit Flash Manufacturing PMI

Friday, July 24
3:00am EUR French Flash Manufacturing PMI
3:30am EUR German Flash Manufacturing PMI

RBA Minutes and Governor Speech Will Make Case for Weaker AUD

The Reserve Bank of Australia (RBA) held interest rates on July 7, 2015 at 2 percent the minutes from that meeting will be release on Monday, July 20 at 9:30 pm EDT. RBA Governor Glenn Stevens mentioned that the global slowdown and increased supply of commodities had hit Australian trade hard. The statement by the RBA Governor was dovish but with no action but if the move by the Bank of Canada to cut its benchmark rate to 0.50 percent is any indication the pressure is on the Australian central bank to follow suit. The minutes of the meeting will likely show that although the rate was held there is a rising probability of an upcoming rate cut. The delay from the U.S. Federal Reserve to hike interest rates will force other central bank into action in order to give their economies a competitive advantage. Governor Stevens will have a chance to drive the AUD lower as he is due to speak at the Anika Foundation Luncheon on Tuesday, July 21.



BoE to Publish Minutes Along with Rate Announcements Going Forward
The Monetary Policy Committee is expected to have voted unanimously to keep rates on hold back in July 9, 2015. The minutes will show if the comments from earlier today from BoE Governor Mark Carney stem from conversations at MPC meeting or if its a new development. BoE Chief Economist Andy Haldane remains dovish on the U.K. economy while Carney’s comments speak of an optimistic outlook that could sustain higher rates before the end of the year. This contrasts with Haldane’s view of the risks of an early lift off. The GBP was boosted by Carney’s comments and would get another lift if the MPC votes showed a couple of members have started to diverge from the pack. The minutes will be released on Wednesday, July 22 at 4:30 am EDT. This will mark the last MPC minutes that are released two weeks after the rate statement as the Old Lady will move to a immediate release following the rate announcement starting in August.



RBNZ Could Cut Cash Rate as Milk Price Drops

Milk prices have hit a six year low ahead of the Reserve Bank of New Zealand rate announcement meeting. The RBNZ is expected to lower rates by as much as 50 basis points to battle low inflation and lower commodity prices. The Official Cash Rate (OCR) stands at 3.00 percent. The OCR’s record low is 2.5 percent which could be touched again if the RBNZ decides on sending a strong signal to the market. Given the lack of urgency from the U.S. Fed a 25 basis points is also on the table to leave room to cut further down the road if needed.



Central Bank events to watch this week:

Monday, July 20
9:30pm AUD Monetary Policy Meeting Minutes
Tuesday, July 21
11:05pm AUD RBA Gov Stevens Speaks
Wednesday, July 22
4:30am GBP MPC Official Bank Rate Votes
5:00pm NZD RBNZ Rate Statement

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

China Flash Manufacturing PMI to Raise GDP Forecast Questions

The Chinese National Bureau of Statistics was under fire as several economists questioned the accuracy of the gross domestic product data released this week. The official GDP numbers showed the economy is growing at a 7 percent rate in April-June, faster than the international forecast of 6.8 percent. This comes after the Asian Development Bank cut annual growth forecast for China down to 7 percent in 2015 and 6.8 percent in 2016. Even with the optimistic growth indicator from China it still faces an uphill battle as there are more accommodative monetary and fiscal policies it can enact to help boost economic growth.

After Greek Vote in German Parliament Market is Back to Fundamentals

With the dust beginning to settle in Europe after the hectic negotiations between Greece and its creditors the purchasing manager’s index (PMI) will release preliminary data to gauge the state of the manufacturing industry. French manufacturing has impressed of late after posting a 50.5 reading and getting back into expansionary territory. German factories have been struggled with lower demand and a stronger EUR, but are still forecasted to post a 52.1 reading after posing a 51.9 last month. Output remains strong in Germany, but it is the new business demand and employment components that signal a potential slowdown.



PMI events to watch this week:

Thursday, July 23
9:45pm CNY Markit Flash Manufacturing PMI

Friday, July 24
3:00am EUR French Flash Manufacturing PMI
3:30am EUR German Flash Manufacturing PMI

*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 has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. 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