Market News & Insights
29 July 2013

Central Bank Week with Focus on the US

As we mentioned on Friday, summer markets have well and truly kicked in with reported trading volumes on the lighter side. However, the week ahead is a lively one in terms of scheduled releases. Our current favourite topic “taper talk” should pick up again as the Federal Reserve gets set to meet on Tuesday and Wednesday. While Fed officials are not expected to make any major changes in their statement or policy, traders will be watching for any subtle tweak that could indicate the Fed’s views on tapering its $85 billion a month bond-buying program. On Wednesday we have US GDP with many economists expecting second-quarter GDP to come in at less than 1 percent. Then on Friday we have the ever all important employment figures in the form of Non Farm Payrolls and the official unemployment rate. Economists expect to see about 184,000 jobs created in July, off slightly from 195,000 in June. The unemployment rate is expected to fall to 7.5 percent from 7.6 percent last month.

Given there’s no chance the Fed’s going to do anything at all, you will have to look at the GDP data and jobs data as a provider of more clues as to the Fed’s next course of action, since jobs are one of the key metrics for the Fed. Along with all this news, we have other important US data throughout the week such as Pending Home Sales today, Consumer Confidence, ISM Manufacturing to name a few. Furthermore about a fifth of the S&P 500 companies report earnings in the coming week.

Closer to home, we have a lot less events to be concerned about. However, Thursday sees both the ECB and Bank of England finish their policy meetings. Whilst neither are expected to adjust current policies, recent developments of announcing forward guidance is likely to keep markets a little more interested. However, we don’t see any major risk of any significant developments with the September meetings likely to be the ones to watch.

On the currency front, the euro has held onto much of its gains from last week. EURUSD is holding onto the 1 month high and is currently sitting comfortably in this higher range of 1.3221 to 1.3285. On the topside, expect 1.33 to act as the first line of defence. Similarly, GBPUSD has also held most of last week’s gains trading sideways within 1.5311 to 1.5392 but with a week of such activity expect USD trading to get a good deal choppier. The question is no longer will the Fed taper but now when with economic conditions being the key contributing factor to that decision.

EURGBP is certainly an interesting one which has continued to move higher despite further upbeat signals from the UK economy last week. However, as it continues to trade in a .8571 – .8662 range we don’t feel this warrants any major concern as along as it falls within recent medium term ranges.