US inflation, the Bank of Canada (BOC), and the Reserve Bank of New Zealand (RBNZ) are set to dominate the upcoming week in the forex market. The focus will be on the US inflation data, with the BOC and RBNZ also announcing their monetary policy decisions. Volatility has already made its presence felt early in the month, driven by inverted yield curves, hawkish central bank comments, and strong US economic data. Global sentiment could be significantly affected by the outcome of Janet Yellen's visit to China, amplifying the importance of these events for forex traders.
June week 4 witnessed rising global bond yields and inverted yield curves, reflecting concerns about the global economy among investors. Looking back to the last week, The FOMC minutes revealed a more hawkish sentiment than anticipated, indicating potential future rate hikes. US economic data remained robust, with positive indicators such as ADP employment figures, declining layoffs, and expanding ISM services PMI. However, the manufacturing sector showed signs of deterioration, with the ISM survey contracting at its fastest pace since the pandemic. Additionally, PMI surveys across China, Europe, and the US continued to weaken.
Looking forward, The week ahead features several key events and themes in the forex market. Central bank members, including officials from the Fed, RBA, and BOC, will be speaking at various times. Traders will closely monitor the US inflation data, Janet Yellen's trip to China, the cash rate decisions of the BOC and RBNZ, China's inflation figures, and inflation expectations. These events are expected to have a significant impact on forex markets and could shape trading strategies for the upcoming period.
US inflation remains a crucial factor for forex traders, as recent PCE inflation data came in softer than expected, dampening the odds of future Fed rate hikes. However, the hawkish stance of the Fed, strong US data, and the potential for a couple more rate hikes have put next week's inflation data back in the spotlight. While inflation is not expected to spike significantly, any surprising figures could lead to increased USD buying or a reassessment of the Fed's hawkishness. Volatility is likely to increase as the data release approaches.
The outcome of Janet Yellen's visit to China will be closely watched by forex market participants, as tensions between the US and China escalate. Both countries have been engaged in a tit-for-tat trade dispute, particularly regarding technology and microchips. Yellen's discussions with Chinese officials on topics such as national security, Ukraine, and Taiwan could have substantial implications for global sentiment and forex markets. Key currency pairs to monitor include USD/CNH, USD/JPY, and AUD/JPY, along with major indices like the S&P 500, Nasdaq 100, and Dow Jones.