Impact of Recent Events on USD and Global Currencies
ACY Securities - Luca Santos
The recent assassination attempt on Donald Trump over the weekend has significantly impacted financial markets. In the immediate aftermath, Trump's odds of becoming the next President soared, alongside a sharp increase in the odds of a Republican sweep in the upcoming elections. This political development has fuelled a rally in the USD across Asian markets, although the movements have been relatively subdued compared to last week's heavy sell-off.
China’s Economic Slowdown
China's latest economic data has added to the market's cautious tone. The second quarter GDP growth fell short of expectations, increasing by only 4.7% year-on-year (yoy), down from 5.3% in the first quarter. Despite a low comparison base, industrial production and fixed asset investment were stable, but retail sales growth disappointed, dropping to 2.0% yoy in June from 3.7% in May. This weaker data, coupled with US political news, has surprisingly left the USD/CNH exchange rate stable. This stability may be due to Chinese authorities' efforts to maintain economic and market stability as the Third Plenum of the Communist Party begins this week.
China Data
The USD/CNH’s stability likely contributes to the relatively contained USD movements elsewhere. Despite the events, traders note that last week's significant moves necessitate a new catalyst for further declines in the DXY, which has found strong support at the 104.00 level. I’ve been looking for a short-term window of USD weakness and a carry trade performance. Also looking to short EUR vs. MXN and maintain a tactical long GBP/USD trade, raising my target to 1.3100 due to favourable domestic developments and global conditions.
USDCNH H4
In the G10 currency space, USD/JPY has experienced a quieter session due to a Japanese holiday, allowing the market to digest recent interventions. Despite short-term macro accounts reducing USD longs, options flow shows a bias towards longer-dated USD/JPY topside positions.
The upcoming week features a relatively light US data calendar, with the retail sales report on Tuesday and the Philly Fed manufacturing index on Thursday as key releases. Several Federal Reserve officials are scheduled to speak, including Chair Powell later this evening, which could provide further market direction.
Economic Calendar for the Week Ahead
In Europe, attention will focus on inflation data, with the wider Eurozone inflation print and UK inflation figures both released on Wednesday. Economists expect core HICP in the Eurozone to align with the consensus at 2.9% yoy, while UK core inflation is forecasted at 3.42% yoy, with a slight deceleration in the services inflation print.
In New Zealand, the options market is pricing in significant risk for tomorrow morning inflation data, one of two key prints that could influence the Reserve Bank of New Zealand's decision on potential rate cuts next month. The European Central Bank meeting on Thursday is not expected to introduce major changes, but updated commentary on economic activity, inflation, and policy outlook will be closely watched. Additionally, in emerging markets, the South African Reserve Bank is anticipated to cut rates by 25 basis points, an out-of-consensus call by our economists.
The confluence of political developments, economic data, and central bank actions continues to create a complex landscape for global currencies. Investors and traders should remain vigilant and responsive to upcoming data releases and geopolitical events that may drive market movements in the days ahead.
This content may have been written by a third party. ACY makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplies by any third-party. This content is information only, and does not constitute financial, investment or other advice on which you can rely.
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