Weekly data: focus on US CPI ahead of Friday’s British releases

This article was submitted by Michael Stark, market analyst at Exness.

Stock markets started the week moderately well on the whole as participants digested Friday’s very strong job data from the USA. The key release this week likely to drive most markets is American inflation on Wednesday: this preview of weekly data looks at USDMXN and EURGBP ahead of the figures.

Last week both the Reserve Bank of Australia and the Bank of England called for two-step hikes, taking their rates to 1.85% and 1.75% respectively. The aftermath of the latter was very negative for the pound, with Governor Andrew Bailey sounding alarms over recession, further rising inflation and the likelihood of significantly higher unemployment in the UK towards the end of the year.

The Bank of Thailand is expected to hike by 0.25% on Wednesday, then on Thursday the Banco de Mexico is likely to go for a triple hike. That would take the benchmark rate in Mexico to 8.5%. Traders will probably remain watchful of developing probabilities for the Fed’s meeting next month after Wednesday’s CPI.

Apart from American inflation on Wednesday, which is a critical release likely to drive markets to price in updated monetary policy later next month, this Friday is notable for a very wide range of British releases from 6.00 GMT, including GDP and balance of trade. Other key releases include inflation from China and various European countries on Wednesday and Friday plus Michigan consumer sentiment on Friday afternoon GMT.

Dollar-peso, daily

Dollar-peso hasn’t moved in an obvious direction so far this summer as the economies of both countries seem to be facing significant headwinds. Slightly higher than expected Mexican inflation in July – as released on Tuesday morning GMT – raised the chances of the BdeM ordering a triple hike. However, the technical recession in the USA and overall clear slowdown are likely to have a significant impact to the south as well given the trade relationship between the two countries.

Overall, the dollar reacted positively to strong job data at the end of last week because that suggests the American economy isn’t as weak as had been feared. However, ongoing gains by the greenback have been absent in most pairs as it remains technically overbought with few exceptions.

The very clear resistance on this chart is the 61.8% weekly Fibonacci retracement around Mex$21. Movement above here doesn’t seem likely unless there’s an upward surprise in the data on Wednesday. With the price currently inside the value area between the 100 and 200 SMAs, continuation sideways would usually be favourable based on technicals, but the importance and unpredictability of CPI makes that less likely now. Traders can probably expect a wider range around the release between about $19.83 and $20.80, possibly more. Volatility might remain quite high on Thursday as well around the BdeM’s meeting.

Key data this week

Bold indicates the most important releases for this symbol.

Wednesday 10 August

  • 12:30 GMT: American annual inflation (July) – consensus 6.1%, previous 5.9%
  • 12:30 GMT: American annual core inflation (July) – consensus 8.7%, previous 9.1%
  • 12:30 GMT: American monthly inflation (July) – consensus 0.2%, previous 1.3%
  • 12:30 GMT: American monthly core inflation (July) – consensus 0.5%, previous 0.7%

Thursday 11 August

  • 11:30 GMT: Mexican annual industrial production (June) – consensus 3.6%, previous 3.3%
  • 12:30 GMT: American monthly PPI (July) – consensus 0.2%, previous 1.1%
  • 12:30 GMT: American monthly core PPI (July – consensus 0.4%, previous 0.4%
  • from 18.00 GMT: statement from the Banco de Mexico

Friday 12 August

  • 14:00 GMT: Michigan consumer sentiment (preliminary, August) – consensus 52.5, previous 51.5

Euro-pound, daily

The euro moved up against the pound sterling in the aftermath of the Bank of England’s negative comments on the economic outlook for the UK last Thursday. The Bank projected the longest recession since the global financial crisis and inflation continuing upward into double digits. Meanwhile political instability continues in the UK as the election of a new prime minister is due later this month.

For the euro, the likelihood of another two-step hike by the ECB next month is now around 95%. Economic problems are looming, though, with inflation in the eurozone showing no signs of peaking yet and the energy crisis ongoing. The price of electricity per kilowatt hour in Germany on the European Energy Exchange reached a fresh record high of €413 this week, around ten times the average in 2019 and 2020.

The upward crossover of the slow stochastic in oversold on 3 August and two successive closes above the 200 SMA would suggest more gains to come for the euro in the next few days. The next clear resistance is the 100 SMA around 84.9p. Above that, the 61.8% weekly Fibonacci retracement is a key area of resistance, while to the downside losses would probably be capped by the 100% Fibonacci retracement around 83p if not slightly above that near the latest low. Given the volume of British data from 6:00 GMT on Friday, this symbol is likely to be highly active and unpredictable around then at least until markets digest the balance of the releases.

Key data this week

Bold indicates the most important releases for this symbol.

Wednesday 10 August

  • 6:00 GMT: German annual inflation (final, July) – consensus 7.5%, previous 7.6%
  • 6:00 GMT: German monthly inflation (final, July) – consensus 0.9%, previous 0.1%
  • 00 GMT: Italian annual inflation (final, July) – consensus 7.9%, previous 8%
  • 00 GMT: Italian monthly inflation (final, July) – consensus 0.4%, previous 1.2%

Friday 12 August

  • 6:00 GMT: British quarterly GDP growth (preliminary, Q2) – consensus negative 0.2%, previous 0.8%
  • 6:00 GMT: British annual GDP growth (preliminary, Q2) – consensus 2.8%, previous 8.7%
  • 6:00 GMT: British balance of trade (June) – consensus negative £9.6 billion, previous negative £9.75 billion
  • 6:00 GMT: British quarterly business investment (preliminary, Q2) – consensus negative 0.3%, previous negative 0.6%
  • 6:00 GMT: British annual construction output (June) – consensus 3.3%, previous 4.8%
  • 6:00 GMT: British annual industrial production (June) – consensus 1.6%, previous 1.4%
  • 6:00 GMT: British annual manufacturing production (June) – consensus 0.9%, previous 2.3%
  • 6:45 GMT: French annual inflation (final, July) – consensus 6.1%, previous 5.8%
  • 6:45 GMT: French monthly inflation (final, July) – consensus 0.3%, previous 0.7%

Disclaimer: opinions are personal to the author and do not reflect the opinions of Exness or LeapRate.

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