This article was written by Michael Oyebamiji, an FX analyst with major focus on G-10 currencies.
The last week in July was more like a major week in the financial markets, and especially for the Japanese market. The Bank of Japan finally put an end to more stimulus and highlighted that it will evaluate the effectiveness of its policy so far.
On the back of this, JPY has rallied massively and therefore there is more downward pressure on the USD/JPY and JGB curve.
This week is the first week of trading in the month of August, and there seem to be more economic events ahead of us than ever.
Earlier this morning, we got disappointing manufacturing PMI data from China at 49.9 which is the lowest since March, 2016. This means that the Chinese economy is yet to overcome its economic misery.
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Let us bear in mind that any PMI data that falls below 50.0 is a strong indication of contraction.
Another major event this week is the Bank of England’s inflation report and interest rate decision on Thursday. The BoE is expected to cut interest rates by 25bps.
If this happens, GBP is expected sell off massively, and a strong rally on FTSE and other major indices across the board could occur. The Reserve Bank of Australia is also expected to cut interest rate by 25bps.
Let’s recall that at the last meeting of the RBA, the governor made it clear that disappointing inflation data and a strong Aussie might convince the RBA to cut rates further.
There’s quite a lot of economic data to look forward to from the United States as well. ISM manufacturing PMI, ISM non-manufacturing PMI, ADP non-farm employment change, and non-farm payrolls for July.
The market is expecting a non-farm payroll of around 175,000 jobs which is slightly below the previous month which stood at of 285,000 jobs.