Forex Market Outlook July 12

GBP/USD found a firm base between 1.3760/40 and managed to finish last week on a high at 1.3900. Charts by

Last week was all about risk. Risk-off dominated the middle of the week only to knocked out by the return of risk-on on Friday.

The market got nervous and had a three-day panic about not just the increased spread of highly infectious covid variants. But also the sustainability of economic growth.

It’s widely thought that peak growth will be in Q2 and early Q3. After which, a drop in economic growth will follow. A return to normal pre-pandemic levels is expected. The panic occurred because covid delta might throw out these predictions.

The rush in to buy US bonds, JPY, CHF and the USD was brutal. However, once the panic had subsided on Friday, currencies soon took back a lot of ground they had lost to the USD and JPY.

This week is going to be a big week for data and Central Banks. Last night, in an exclusive interview for Bloomberg ECB President Christine Legarde, spoke about the setting of new forward guidance at the next ECB meeting, which is in a couple of weeks. She ruled out any tapering of QE anytime time soon. She appeared more dovish than ever. The EUR has not reacted to her interview as of yet.

Tuesday’s data will be dominated by the US CPI for June. Economists are expecting a slight drop to 4.9% from the previous months reading of 5%. Germany will also release its harmonised inflation report for June.

On Wednesday, two of the more hawkish Central Banks have meetings to set monetary policy, plus UK inflation is also released.
First will be the Reserve bank of New Zealand. You will need to watch their statement as it could be the catalyst for direction.
The Bank of Canada will also meet later that day.
Inflation in the UK is expected to show an increase in June to 2.3%. I don’t think anyone will care., if the number comes in as expected. You need a big miss for the market to get excited. As the Bank of England is following the transitory higher inflation mantra as used by the FOMC.

Thursday’s big event is the release of Q2 GDP for China. Economists are expecting a drop from the 18.8% record of Q1 to about 8%.
Other data, being released includes Australian and UK employment numbers and US weekly claims.

Friday starts with NZ inflation, followed by the Bank of Japan monetary policy meeting. Then the Euro Zone CPI for June. The highlight of Friday will likely be US retail sales, which is predicted to fall by 0.4%.

Don’t forget to look out for FOMC Chair Powell giving testimony on Wednesday and Thursday. He is probably going to talk more about transitory inflation and will worry about delta.

Good luck and happy trading.

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Published by Neil Callard

Forex Trader and Educator. 30 years trading experience, of which 20 years was market making in major currencies in large international financial institutions.

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