Markets turned bearish this week after the previous rally saw overbought conditions, triggering a sharp rally in the US dollar and a sell-off in risky assets such as stocks and some commodities and currencies, despite continued declines in inflation seen in major global economies.
It's very likely the difference between success and failure in Forex / CFD trading mainly depends on which assets you choose to trade each week and in which direction , and not by the exact methods you might use to determine trade entries and exits.
So, at the beginning of the week, it is a good idea to look at the big picture of what is developing in the market as a whole and how such developments are influenced by fundamental macros , technical factors and market sentiment. There are some strong long-term trends in the market right now, which could be profitably exploited.
Market sentiment is dominated by a more bearish turn as the previous rally in risk appetite has tightened slightly, despite last week's data showing that inflation fell in Canada, the United Kingdom and New Zealand . The declines in the UK and Canada were stronger than expected, while the decline in New Zealand was weaker than expected. However, data later in the week showed weaker US retail sales which helped trigger a sell-off in risky assets, which saw the US dollar gain and stocks fall.
Markets will start the week focusing on the expected rate hikes of 0.25% at this week's policy meetings by the US Federal Reserve and the European Central Bank. The Bank of Japan will also hold a policy meeting later in the week.
Markets are likely to start this week in the same risk-off mood which prevailed at the end of last week.
Other key data released last week were:
- China's GDP and Industrial Production: Both showed an increase, but the GDP data was lower than expected.
- US Empire State Manufacturing Index – better than expected.
- Reserve Bank of Australia Monetary Policy Meeting Minutes: This was considered a bit hawkish as the minutes acknowledged that the decision not to hike was very close.
- US unemployment claims – almost exactly as expected.
- Australian unemployment rate – remained unchanged at 3.5% when expected to rise to 3.6%
The week ahead: July 24 – July 28
The markets are likely to see a level of next week volatility higher than last week, as three important central bank meetings are scheduled. This week's major data releases are , in order of importance:
- US Federal Funds Rate and Rate Statement
- Main refinancing rate and monetary policy statement of the European Central Bank
- Bank of Japan policy rate, monetary policy statement and outlook report
- US anticipated GDP
- US Core PCE Price Index
- US CB Consumer Confidence
- US consumer sentiment revised
- US, UK, Germany, France Flash Services and Manufacturing PMI
- Australian CPI (inflation) data
- Canadian GDP
- Unemployment claims in the United States
- Labor cost index in the United States
Credit by DailyForex.com
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