Week ahead: BOJ, BOC, ECB, and a lot of Q2 corporate earnings
NBHM Research Team
Gold price rallied last week as traders remained worried about the rising number of coronavirus cases in the United States and the rising tensions between the US and China. The price moved above the important resistance level of $1,800, which was the highest level since 2011.
The US dollar, on the other hand, weakened against major peers as traders continued to worry about negative interest rates. Meanwhile, base and industrial metals and crude oil rose as traders remained optimistic about demand as more countries reopened.
Gold: Gold price rose sharply last week because of the rising number of coronavirus cases in the US. On Wednesday, health officials confirmed more than 62,000 new cases, beating the previous daily record of 54,000. Analysts believe that the country will report more cases as people go back to work. Therefore, gold price is rising because investors anticipate more actions by the Federal Reserve to stimulate the economy.
Some of the potential actions could be negative interest rates, more QE, and yield curve control. These measures would be bullish for gold prices for two reasons. First, they will bring the value of the US dollar down. Gold and the USD have an inverse relationship. Second, negative rates would discourage saving, which is a positive thing for gold. Third, it would lead to negative yields in the bond market and encourage investments in other assets, including gold.
The chart below shows that the XAU/USD pair is above the short and medium-term moving averages while the RSI has just moved to the overbought level. This means that the price may continue rising as bulls target the all-time high of $1,918.
US dollar: The fear of negative rates has pushed the US dollar down. This week, the greenback will react to several economic numbers. On Tuesday, the Bureau of Labour Statistics will release June inflation numbers from the US. Analysts expect that the headline CPI rose from the previous 0.1% to 0.3% while the core CPI rose from minus 0.1% to 0.3%. On Wednesday, the bureau will report the June export and import prices and industrial production data. On Thursday, we will receive US retail sales numbers and Philadelphia Fed manufacturing index followed by building permits and starts from the US.
Euro: The euro was among the best-performing currencies in the developed countries. The currency was reacting to upbeat economic numbers from the Eurozone. This week, the currency will react to the ECB interest rate decision that will come on Thursday. Analysts expect that the bank will leave the deposit facility rate unchanged at -0.50% and the marginal lending facility at 0.25%. Also, they expect that the bank will leave its quantitative easing policies unchanged. Additionally, we will receive the Eurozone’s trade numbers on Thursday, inflation numbers on Friday, and industrial production data today.
British pound: The British pound has been relatively strong in the past few weeks. That is because most traders believe that Boris Johnson will compromise on Brexit because the UK has more to lose in case of a no-deal Brexit. For one, the country exports more than 45% of its goods to the EU while the EU exports goods worth less than 5% to the UK.
This week, we will receive a number of important economic data from the UK. On Tuesday, the Office of National Statistics (ONS) will release the May employment numbers. Analysts expect that wages rose by 1.9% while the number of people filing for jobless claims fell from 528k to 400k. The office will also release the industrial and manufacturing production data and trade numbers. Other key numbers to watch will be inflation and car registration.
S&P 500: The S&P 500 moved sideways last week as traders continued to worry about new lockdowns. This week, the index, together with the Dow Jones and Nasdaq, will react to a slew of corporate earnings from the US. Analysts believe that this will be one of the worst earnings season in history because most people were staying at home. On Monday, the only major company that will release its earnings is Pepsi. On Tuesday, Wall Street banks like JP Morgan, Citigroup, and Wells Fargo will report. They will be followed by UnitedHealth, Infosys, eBay, Bank of New York Mellon, Omnicom, Sleep Number, Micrososft, Netflix, Morgan Stanley, Danaher, and Goldman Sachs among others. So, we expect a lot of volatility in the S&P 500.
Canadian dollar: The Canadian dollar has been on a strong momentum against the US dollar because of higher crude oil prices, falling number of coronavirus infections, and upbeat economic numbers. This week, attention will shift to the Bank of Canada, which will start its meeting tomorrow. Analysts polled by Reuters expect the bank to leave interest rates unchanged at 0.25%. They also expect that the bank will sound cautious even though the economy is improving.
In addition to the rate decision, we will receive inflation and manufacturing sale numbers from the country. We will also receive nonfarm employment change data from ADP and May wholesale numbers.
Australian dollar: The Australian dollar wavered last week as the number of coronavirus cases in Australia continued to rise. This led to the border closure between Victoria and Melbourne states. Traders believed that these closures will disrupt the economic growth that we have seen in the past few weeks. This week, the key numbers to watch from Australia will be business confidence from NAB, consumer sentiment from Westpac, new home sales numbers, and employment numbers. Further, we will receive Q2 GDP data and industrial production data from China. The daily chart below shows that the AUD/USD pair has been consolidating in the past few days.
Japanese yen: The Japanese yen will be in the spotlight this week because of the Bank of Japan interest rate decision that will come out on Wednesday. Analysts expect that the bank will leave the monetary policy unchanged. As such, the bank will retain the interest rate at -0.10%. It will also continue with the open-ended quantitative easing policy it has been implementing in the past few months.