Currency Analyst since 2010

US dollar: outlook for July 25-31

Data released in the United States during the past week were mostly positive: building permits, housing starts and existing home sales exceeded expectations, while unemployment claims were at their lowest since April. The biggest disappointment was the slide in Philadelphia Fed manufacturing index.

Next week the focus will be on the meeting of the US Federal Reserve since the Brexit vote. The central bank is not expected to raise interest rate, but traders, as usual, will be watching the changes in its statement. It’s interesting how the Fed evaluates the impact of Britain’s decision to leave the euro area on the US economy. According to the Federal funds rate futures, the possibility of a rate hike in the US by December increased since the beginning of the month from 12% to 45%. If American data keep coming positive, traders will start pricing in higher US rates. Monetary policy divergence between the Fed and other central banks, which are expected to ease policy this summer – the Bank of Japan, the Bank of England, Reserve Banks of Australia and New Zealand, – will once again become the main driver of the market supporting demand for the US dollar.

US dollar index, which tracks the dynamics of the greenback versus a basket of currencies, breached resistance at 96.80. This level limited dollar’s advance since the end of June. Above 97.00 next targets lie and 97.50 and 98.00.   

Other important events in the US economic calendar next week include CB consumer confidence and new home sales on Tuesday, core durable goods orders on Wednesday, unemployment claims on Thursday and advance GDP for Q2 and Chicago PMI on Friday. 

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