• Expectations of a Fed rate hike are back in focus The dollar was strong on Monday after Greek debt crisis talks finally ended with an agreement and allowed the market to shift its attention back on Fed rate hike expectations. With Grexit seemingly averted, investors will focus on the semi-annual testimony by Fed Chair Yellen and whether she will give any hints regarding the timing of a rate lift-
• Overnight we had a pretty quiet session the FX market with AUD the only exception. The Australian dollar strengthened after the country’s NAB business conditions and business confidence indices both increased in June from the previous month. Nevertheless, given the slowdown in the Chinese economy, Australia’s biggest trading partner, and the lower iron ore prices, I would expect any advances in AUD/USD to be short-lived and the rate could resume its broader downtrend anytime soon.
• Today’s highlights: During the European day, we get the German ZEW survey for July. The survey for June added to the weak data coming out from the country with both indices falling below market expectations. The market consensus is for another decline in the indices, which could add to the evidence that the German economy is losing momentum. However, the impact on the currency was minimal the last few times as the market focus was on the political developments around Greece rather on the economic data. Assuming that the Greek uncertainty has diminished somewhat, I would expect the market to start paying attention to the economic data again.
• In the UK, the House of Commons Treasury Committee questions BoE Governor Mark Carney, Deputy Governor Jon Cunliffe and MPC members David Miles and Ian McCafferty on the Bank's May Inflation Report. The Bank cut its growth forecast for this year and the next one but reiterated that the CPI will return to target in 2 years, thus the testimony is unlikely to reveal anything new for the markets other than the next move in rates is more likely than not to be an increase.
• As for the indicators, the UK CPI for June is coming out. In May, the country just barely exited deflation as the headline CPI rate rose to +0.1% yoy. It had been -0.1% yoy in April, the country’s one month in deflation. The figure was in line with market consensus and in line with BoE expectations of a short-lived dip into deflation. Nevertheless, the core rate missed expectations, which suggests that the low inflation is not merely a matter of low oil prices, and prices may not rise even when the effects of low oil prices fade from the data. Therefore, the focus will be again on the core figure and on any signs of positive upside momentum in prices.
• In the US, retail sales for June are expected to decelerate. May’s figure was strong, while April’s reading, even though revised up a touch, was disappointing. This frustrated investors who have been looking for signs that the soft Q1 patch is coming to an end. Overall, the data for Q2 show a moderate improvement from the previous quarter, which could support growth somewhat. A positive surprise in June’s figure is needed to keep confidence up and USD supported. The NFIB small business optimism for June is expected to have increased a bit. While this indicator is not particularly market-affecting, it’s well worth watching because of the Fed’s emphasis on employment.