In the European session, we don’t have much on the agenda other than the German ZEW. This indicator showed a big rebound in the last month amid easing trade war fears, ECB rate cuts and expansionary fiscal measures. The optimism remains high. Whatever the indicator is going to show, it won’t change anything for the market or the ECB at the moment.
In the American session, we get the Canadian CPI and the US CPI. The Canadian Trimmed-Mean CPI Y/Y is expected at 3.0% vs 3.0% prior. This is the most important data for the BoC as it measures underlying inflation. The market sees 21 bps of easing by year-end, but given the improving labour market data, even if we get a touch softer figures, the pricing will likely remain around 25 bps.
The US Core CPI Y/Y is expected at 3.0% vs 2.8% prior, while the M/M measure is seen at 0.3% vs 0.1% prior. Given the resilient labour market data, even if we get soft figures, the Fed won’t cut in July at this point. The market will likely increase the rate cut bets from September onwards though and weigh on the US dollar, while keeping risk assets supperted.
Higher than expected figures is what could trigger the biggest reaction. While one data point doesn’t make a trend, the market will likely assign more risk premium on the inflation view and even if the interest rates pricing might remain the same, we could see some corrections in asset prices with US dollar likely supported, while risk trades undergoing some ‘profit taking’.
Central bank speakers:
13:15 GMT/09:15 ET – Fed’s Bowman (dove – voter)16:45 GMT/12:45 ET – Fed’s Barr (neutral – voter)18:45 GMT/14:45 ET – Fed’s Colling (neutral – voter)20:00 GMT/16:00 ET – BoE’s Bailey (neutral – voter)
This article was written by Giuseppe Dellamotta at www.forexlive.com.