The Week Ahead 24th – 28th July: Interest rate decision ahead: will the Fed and ECB follow the same path?

<p>Welcome to Key to Markets preview of the Week Ahead.</p>
<h2>Currency Pair Performance</h2>
<p>5-day performance as of<strong> July 20, 2023. 10:30 GMT.</strong></p>
<p><img decoding="async" loading="lazy" class="alignnone wp-image-24369 size-full" src="https://www.keytomarkets.com/blog/wp-content/uploads/2023/07/Chart-1-3.png" alt="" width="602" height="268" srcset="https://www.keytomarkets.com/blog/wp-content/uploads/2023/07/Chart-1-3.png 602w, https://www.keytomarkets.com/blog/wp-content/uploads/2023/07/Chart-1-3-300×134.png 300w" sizes="(max-width: 602px) 100vw, 602px" /></p>
<p>Source: finviz.com</p>
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<h2>10 Big Stories Last Week</h2>
<p>In case you missed it…</p>
<p><strong>UK inflation cooled by more than expected.</strong> UK CPI eased to 7.9% YoY in June, down from 8.7%. Core inflation also eased by more than forecast. GBP/USD dropped below 1.30.</p>
<p><strong>Tesla’s profitability fell.</strong> The EV maker posted record revenue of $24.93 billion, ahead of the $24.73 forecast. Gross margins fell to 18.2% from 25% after a series of price cuts.</p>
<p><strong>Netflix sales and forecasts disappoint.</strong> Netflix added 5.9 million users, more than double estimates, but sales of $8.19 billion came in below forecasts. Q3 revenue guidance also missed estimates.</p>
<p><strong>Gold rose to a 2-month high.</strong> The precious metal benefits from bets that central banks are close to peak interest rates and the weaker USD.</p>
<p><strong>China’s GDP forecast was downwardly revised.</strong> Major investment banks such as Goldman Sachs, UBS, and Citigroup have all revised lower China’s GDP outlook. China’s Q2 GDP was below forecasts.</p>
<p><strong>Apple announced that it is developing its own ChatGPT.</strong> The tech giant is creating its own AI large language model and chatbot called Apple GPT.</p>
<p><strong>Goldman Sachs profits plunged 58%.</strong> The investment bank saw revenue from its core businesses of dealmaking and trading slow and posted its lowest quarterly profit since early 2020.</p>
<p><strong>Dow Jones posted 8 straight wins.</strong> This is the longest rally in the index since 2019 and comes as the market increasingly considers that the Fed will hike rates just once more this year.</p>
<p><strong>Microsoft hit an all-time high.</strong> The tech giant rose after revealing its pricing for AI. MSFT will charge $30 per month for generative AI features, which is at the higher end of generative AI services.</p>
<p><strong>EasyJet delivered a record Q3 profit.</strong> The budget airline swung into a pre-tax profit of £203M amid strong demand, with revenue up 34% to £2.36 billion. Passenger growth was 7%.</p>
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<h2>Chart of the Week</h2>
<p><img decoding="async" loading="lazy" class="alignnone wp-image-24366 size-full" src="https://www.keytomarkets.com/blog/wp-content/uploads/2023/07/Chart-2-2.png" alt="" width="602" height="296" srcset="https://www.keytomarkets.com/blog/wp-content/uploads/2023/07/Chart-2-2.png 602w, https://www.keytomarkets.com/blog/wp-content/uploads/2023/07/Chart-2-2-300×148.png 300w" sizes="(max-width: 602px) 100vw, 602px" /></p>
<p>Source: Bloomberg</p>
<p>UK inflation dropped to 7.9% YoYY, its lowest in 15 months, down from 8.7% YoY in May. This was the first time in 5-months that headline inflation was below forecasts and marked the largest downside surprise since July 2021.</p>
<p>As a result, markets have reined in bets for a sharp rate increase on August 3rd, and now expect a 25 bps hike over a 50 bps hike. Peak rate expectations have also fallen to 6% from 6.25% prior to the inflation release, pulling the pound lower to $1.29.</p>
<p>While the UK’s inflation is still considerably higher than the US or the eurozone, it’s worth noting that the economy is also weaker, which brings into question whether the BoE will be able to hike a further 100 bps from today’s 5%. The idea that the BoE can hike to a terminal rate around 1% higher than the US and 2% higher than Europe could be a little overdone.</p>
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<h2>5 Things to Watch This Week</h2>
<p><strong>1. Fed rate decision</strong><br />
The market is almost fully pricing in a 25 basis point rate hike from the Federal Reserve on Wednesday 26th July, taking rates to 5.25%-5.5%. The big question is whether it will be the end of the tightening cycle. Whilst the dot plot in the June meeting pointed to two more rate hikes, signs of weakness in the labour market and cooler-than-expected inflation could see more policymakers question the need for another rate hike after July. Any sense the Fed could pause tightening could pull the USD lower.</p>
<p><strong>2. ECB rate decision</strong><br />
After hiking rates to a 22-year high in June, the ECB is expected to announce a further 25 basis point rate hike on Thursday, 27th July, taking the lending rate to 3.5%. Since the June meeting, data has shown that the economy has slowed and that inflation has cooled to 5.5%. This is still well above the ECB’s 2% target, and core inflation is also proving to be sticky. Investors will be looking for clues as to whether the central bank will hike again in September and if this will be the last increase.</p>
<p><strong>3. Microsoft earning</strong><br />
Microsoft is due to release Q4 earnings on Tuesday 25th July. The earnings come as the share price trades at a record high and up 6% just over the last month after the tech giant unveiled pricing for its new AI subscription. Management could address the growth potential of this area of the business. Any further updates on the Activision Blizzard acquisition will also be in focus. Wall Street expects EPS of $2.55 on revenue of $55.46 billion, up from $2.24 and $51.87 billion a year earlier amid resilience in the cloud business and as the weak PC market stabilises.</p>
<p><strong>4. Meta earnings</strong><br />
Meta is due to report earnings on Wednesday, 26th July, as the stock trades up 151% year to date. Meta has projected revenue for the quarter of $29.5 billion -$32 billion, Wall Street is expecting revenue of $31.1 billion up 8%, with EPS of $2.90. The focus will be on the digital ads business and the potential for AI, rather than the newly launched Threads, amid no near-term plans to make money from the service.</p>
<p><strong>5. European bank earnings</strong><br />
While US banks dominated this week and last week, attention will shift to European banks’ earnings next week. UBS, Barclays, Deutsche Bank, Standard Chartered, and Lloyds are some of the big names due to report Q2 results. While higher interest rates are set to boost NIM, a drought in deal-making is set to hit investment banking units.</p>
<p><strong>Economic Calendar Highlights</strong></p>
<p><img decoding="async" loading="lazy" class="alignnone wp-image-24372 size-full" src="https://www.keytomarkets.com/blog/wp-content/uploads/2023/07/Chart-3-2.png" alt="" width="602" height="393" srcset="https://www.keytomarkets.com/blog/wp-content/uploads/2023/07/Chart-3-2.png 602w, https://www.keytomarkets.com/blog/wp-content/uploads/2023/07/Chart-3-2-300×196.png 300w" sizes="(max-width: 602px) 100vw, 602px" /><br />
<img decoding="async" loading="lazy" class="alignnone wp-image-24375 size-full" src="https://www.keytomarkets.com/blog/wp-content/uploads/2023/07/Chart-4.png" alt="" width="602" height="327" srcset="https://www.keytomarkets.com/blog/wp-content/uploads/2023/07/Chart-4.png 602w, https://www.keytomarkets.com/blog/wp-content/uploads/2023/07/Chart-4-300×163.png 300w" sizes="(max-width: 602px) 100vw, 602px" /><br />
Source: FXStreet.com</p>
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<h2>Technical Analysis:</h2>
<p>TA of the major asset classes (Forex – Commodities – Indices…).</p>
<p><strong>EUR/USD (Daily Candlestick Chart)</strong></p>
<p><img decoding="async" loading="lazy" class="alignnone wp-image-24378 size-full" src="https://www.keytomarkets.com/blog/wp-content/uploads/2023/07/EURUSD-8.png" alt="" width="2556" height="1227" srcset="https://www.keytomarkets.com/blog/wp-content/uploads/2023/07/EURUSD-8.png 2556w, https://www.keytomarkets.com/blog/wp-content/uploads/2023/07/EURUSD-8-300×144.png 300w, https://www.keytomarkets.com/blog/wp-content/uploads/2023/07/EURUSD-8-1024×492.png 1024w, https://www.keytomarkets.com/blog/wp-content/uploads/2023/07/EURUSD-8-768×369.png 768w, https://www.keytomarkets.com/blog/wp-content/uploads/2023/07/EURUSD-8-1536×737.png 1536w, https://www.keytomarkets.com/blog/wp-content/uploads/2023/07/EURUSD-8-2048×983.png 2048w" sizes="(max-width: 2556px) 100vw, 2556px" /></p>
<p>EUR/USD is in an uptrend, making higher highs and lows and above the 50 SMA.<br />
Price has been consolidating in a tight range around 1.12 since breaking out to new highs. 1.138 and then 1.15 are the next potential upside objectives, while broken long-term resistance at 1.11 is major support.</p>
<p><strong>GBP/USD (Daily Candlestick Chart)</strong></p>
<p><img decoding="async" loading="lazy" class="alignnone wp-image-24381 size-full" src="https://www.keytomarkets.com/blog/wp-content/uploads/2023/07/GBPUSD-8.png" alt="" width="2556" height="1227" srcset="https://www.keytomarkets.com/blog/wp-content/uploads/2023/07/GBPUSD-8.png 2556w, https://www.keytomarkets.com/blog/wp-content/uploads/2023/07/GBPUSD-8-300×144.png 300w, https://www.keytomarkets.com/blog/wp-content/uploads/2023/07/GBPUSD-8-1024×492.png 1024w, https://www.keytomarkets.com/blog/wp-content/uploads/2023/07/GBPUSD-8-768×369.png 768w, https://www.keytomarkets.com/blog/wp-content/uploads/2023/07/GBPUSD-8-1536×737.png 1536w, https://www.keytomarkets.com/blog/wp-content/uploads/2023/07/GBPUSD-8-2048×983.png 2048w" sizes="(max-width: 2556px) 100vw, 2556px" /></p>
<p>GBP/USD is in an uptrend, making higher lows and highs and above the 50 SMA.<br />
Price has undergone a big correction back under the key 1.30 threshold. Former resistance has now turned support at 1.283, followed by 1.27. 1.30, then the prior high at 1.316 are the next potential resistance levels.</p>
<p><strong>USD/JPY (Daily Candlestick Chart)</strong></p>
<p><img decoding="async" loading="lazy" class="alignnone wp-image-24384 size-full" src="https://www.keytomarkets.com/blog/wp-content/uploads/2023/07/USDJPY-8.png" alt="" width="2556" height="1227" srcset="https://www.keytomarkets.com/blog/wp-content/uploads/2023/07/USDJPY-8.png 2556w, https://www.keytomarkets.com/blog/wp-content/uploads/2023/07/USDJPY-8-300×144.png 300w, https://www.keytomarkets.com/blog/wp-content/uploads/2023/07/USDJPY-8-1024×492.png 1024w, https://www.keytomarkets.com/blog/wp-content/uploads/2023/07/USDJPY-8-768×369.png 768w, https://www.keytomarkets.com/blog/wp-content/uploads/2023/07/USDJPY-8-1536×737.png 1536w, https://www.keytomarkets.com/blog/wp-content/uploads/2023/07/USDJPY-8-2048×983.png 2048w" sizes="(max-width: 2556px) 100vw, 2556px" /></p>
<p>USD/JPY is a correction of an uptrend, making a lower low and below the 50 SMA.<br />
Price found support after the big 700 pip drop at the former major resistance at 137.5. A short-term base and then a breakout would imply a new leg up in the uptrend. This would be confirmed by a move back over the 50 SMA.</p>
<p><strong>Gold (Daily Candlestick Chart)</strong></p>
<p><img decoding="async" loading="lazy" class="alignnone wp-image-24387 size-full" src="https://www.keytomarkets.com/blog/wp-content/uploads/2023/07/XAUUSD-8.png" alt="" width="2556" height="1227" srcset="https://www.keytomarkets.com/blog/wp-content/uploads/2023/07/XAUUSD-8.png 2556w, https://www.keytomarkets.com/blog/wp-content/uploads/2023/07/XAUUSD-8-300×144.png 300w, https://www.keytomarkets.com/blog/wp-content/uploads/2023/07/XAUUSD-8-1024×492.png 1024w, https://www.keytomarkets.com/blog/wp-content/uploads/2023/07/XAUUSD-8-768×369.png 768w, https://www.keytomarkets.com/blog/wp-content/uploads/2023/07/XAUUSD-8-1536×737.png 1536w, https://www.keytomarkets.com/blog/wp-content/uploads/2023/07/XAUUSD-8-2048×983.png 2048w" sizes="(max-width: 2556px) 100vw, 2556px" /></p>
<p>XAU/USD is in an uptrend making higher highs and lows above the 50 SMA.<br />
The gold price has held the broken 50 SMA as support on a re-test and is now testing critical resistance from 1970-80 with the key 2k level just above.</p>
<p><strong>Brent Oil (Daily Candlestick Chart)</strong></p>
<p><img decoding="async" loading="lazy" class="alignnone wp-image-24390 size-full" src="https://www.keytomarkets.com/blog/wp-content/uploads/2023/07/XBRENT-8.png" alt="" width="2556" height="1227" srcset="https://www.keytomarkets.com/blog/wp-content/uploads/2023/07/XBRENT-8.png 2556w, https://www.keytomarkets.com/blog/wp-content/uploads/2023/07/XBRENT-8-300×144.png 300w, https://www.keytomarkets.com/blog/wp-content/uploads/2023/07/XBRENT-8-1024×492.png 1024w, https://www.keytomarkets.com/blog/wp-content/uploads/2023/07/XBRENT-8-768×369.png 768w, https://www.keytomarkets.com/blog/wp-content/uploads/2023/07/XBRENT-8-1536×737.png 1536w, https://www.keytomarkets.com/blog/wp-content/uploads/2023/07/XBRENT-8-2048×983.png 2048w" sizes="(max-width: 2556px) 100vw, 2556px" /></p>
<p>XBRENT is in an uptrend with higher highs and lows above the 50 SMA.<br />
The price found support at the old range ceiling of 78.0 but might still correct lower towards 75 before resuming the new uptrend. The high at 82 and then 85 are logical levels of resistance for any move up from here.</p>
<p><strong>US500 (Daily Candlestick Chart)</strong></p>
<p><img decoding="async" loading="lazy" class="alignnone wp-image-24393 size-full" src="https://www.keytomarkets.com/blog/wp-content/uploads/2023/07/XUS500-8.png" alt="" width="2556" height="1227" srcset="https://www.keytomarkets.com/blog/wp-content/uploads/2023/07/XUS500-8.png 2556w, https://www.keytomarkets.com/blog/wp-content/uploads/2023/07/XUS500-8-300×144.png 300w, https://www.keytomarkets.com/blog/wp-content/uploads/2023/07/XUS500-8-1024×492.png 1024w, https://www.keytomarkets.com/blog/wp-content/uploads/2023/07/XUS500-8-768×369.png 768w, https://www.keytomarkets.com/blog/wp-content/uploads/2023/07/XUS500-8-1536×737.png 1536w, https://www.keytomarkets.com/blog/wp-content/uploads/2023/07/XUS500-8-2048×983.png 2048w" sizes="(max-width: 2556px) 100vw, 2556px" /></p>
<p>XUS500 is in an uptrend, making higher highs and lows above the 50 SMA.<br />
The low volatility uptrend in the price continues with 4500 now near-term round number support. Even with the overdue larger correction, the uptrend should remain intact while above the last swing low at 4370.</p>
<p>Thank you very much for reading – and have a great week trading!</p>
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