Next week has a lot in store for traders and institutional investors, with markets set to be overwhelmed by an abundance of new developments. On Monday the 16th of July, the most interesting development will be the release of Chinese economic growth data for the 2nd quarter of 2018. According to market expectations, the country’s GDP growth is set to drop from 6.8% to 6.7% year-on-year. Negative data will affect, first and foremost, Chinese commodity markets and stock exchanges. While this reduction in growth is expected, the situation may worsen further on the back of the escalating trade conflict with the US. This means that Chinese GDP growth could slow down more sharply by the end of the year, which will induce a correction on commodity prices.
Tuesday the 17th of July will see Fed Chair Jerome Powell take the floor. Markets will be listening out for hints on the Fed’s monetary policy, although at first glance it may seem that the Fed’s position on this has long been clear. It will also be interesting to hear what is said about the US economy’s growth prospects in the near future and how it may affect the trade dispute with China. While there’s no guarantee that Powell will touch on the subject of the Chinese trade dispute, this is something that can’t be ignored by the Fed and it has to shape their decision making to an extent. Some stern rhetoric from Powell along with some positive economic projections should allow the US dollar index to break the 95.5 point mark. For the EURUSD pair, this will mean a decline to around 1.145. Powell will continue his speech on Wednesday.
Those who get all they need from Powell’s first speech can turn their attention towards Eurozone and British inflation data on the 18th of July. Eurozone inflation in June is likely to remain at 2%, which is in line with the ECB’s target and will provide a bit of support to the euro. In the UK, year-on-year inflation is expected to rise from 2.4% to 2.6%, which could influence the BoE’s stance and lead to a tightening of monetary policy. It’s too early to talk about a rising pound, but I think that in any case the GBPUSD pair will stop at around 1.306.
The Baker Hughes US oil rig count is on Friday. Oil prices have recently undergone a significant correction. Brent oil could hit 72.5 USD per barrel at the beginning of the week. How prices behave after that will depend on the data releases mentioned above as well as US commercial oil reserves. A reduction in reserves along with a reduction in the number of active oil rigs could allow prices to recover to 75 USD per barrel.
Canada will also release some economic data, although after the recent interest rate hike, it might not be taken seriously.