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WEEK AHEAD: JULY 26

Short Description

The last meeting of the US Federal Reserve until after the summer should be a big driving force for forex markets. Also, the big tech companies report second-quarter earnings, which has implications for tech stocks as well as the Nasdaq index. Lots to discuss. Thanks! Rich

Video Script

Hi everyone, hope you’re doing well and ready for an exciting week of trading. We’ve got the last meeting of the US Federal Reserve until after the summer, which should be a big driving force for forex markets. At the same time some of the biggest tech companies in the world report second-quarter earnings, which has implications for big tech stocks as well as the Nasdaq index. Lots to discuss. Stay right here!

 

So first up, let talk about the FOMC meeting this Wednesday. Remember at the last meeting in June, the Fed changed its guidance with a hawkish shift on rate hikes to acknowledge rising inflation in the US. 

 

The dollar has really been falling ever since that last meeting because it looks like the Fed will be among the first of the major central banks to lift rates. Something that has confused a lot of investors is that US Treasury yields have headed lower at the same time. I think can be explained by Fed promising it will act to curb inflation by raising rates if inflation gets out of hand. 

 

Based on data showing inflation data continuing to push beyond expectations, as well as continuing improvement in the labour market, the Fed will continue this delicate hawkish shift. A hawkish Fed is normally positive for the USD – but its possible the market perceives the Fed as moving too slowly, in which case the dollar could sell off.

 

I think an interesting one to watch is NZD/USD for this Fed meeting. The Reserve Bank of New Zealand made the shock decision to end its bond buying program completely. BUT the Kiwi dollar reacted badly to this positive news and actually completed a long-term Head and Shoulders top pattern soon afterwards. If the Fed gets extra hawkish, that supports the breakdown in NZD/USD but if the Fed flip flops and sounds dovish, the Head and Shoulders pattern could reverse, which would be a big positive signal for the Kiwi.

 

And guys can I just ask that if you’re enjoying the video, please make sure you give a quick tap of that like button!

 

I won’t go into too much detail here but certainly the big event for the week for stock markets and perhaps risk sentiment more broadly are the Big tech earnings. Amazon, Apple, Alphabet, Facebook, and Tesla all report their results this week. Despite the wobbles last week, the stock market is still easily in a bull market. As relates to these earnings, there’s two things that I think could turn sentiment more bearish. One is if these tech companies miss estimates, the second is if they beat estimates but the stocks fall anyway, showing they are already priced to perfection.

 

Now let’s round off with the rest of the highlights in the economic calendar. My focus will be on the two GDP reports out of the US and the Eurozone. I think most investors understand economic growth will slow down the further we move past the initial recovery, but I think if the slowdown was clearly already starting in Q2, that would be a big problem for investor confidence. Investors have already started buying bonds, sending yields lower but so far it’s been assumed the reason was more related to inflation - not growth fears. Let’s see if the data backs up the moves in the bond market because if it does, stocks could follow yields lower and the dollar could continue its ascent.

 

Right thanks everyone, good luck trading this week and make sure to click on subscribe so you don’t miss the next episode of the week ahead.

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