Markets Week Ahead: USD/JPY, Euro, Dow, Oil, BoC, RBNZ, Inflation, Earnings

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Markets experienced some turbulence last week as free-falling bond yields concerned investors and fueled an unwind of the reflation trade. The ten-year Treasury yield, for example, plunged as much as 20-basis points to a low of 1.25%. This corresponded with a sharp pullback in risk appetite that sent the Dow Jones spiraling -1.8% lower mid-week.

Crude oil prices similarly came under pressure with the commodity sinking -5.9% at its weekly low. Fear surrounding the delta covid variant – and its potential to weigh negatively on global growth prospects – stood out as one key driver of the move. Nevertheless, trader sentiment improved considerably later in the week with the Dow, S&P 500, and Nasdaq all closing at record highs on Friday. That appeared to follow NIAID Director Dr. Fauci announcing how FDA-approved covid vaccines are effective against the delta variant.

Gold gained 1.5% to close above the $1,810-price level largely thanks to recent bond market volatility. The drop in sovereign interest rates helped drag USD/JPY price action lower as lower real yields benefited the Japanese Yen across the board of major FX peers. EUR/USD whipsawed to finish 13-pips higher on balance after weakening to its lowest level since 05 April with Euro bulls deterred little by the ECB shifting its inflation mandate to allow for overshoots of the symmetric 2% target.

Major Currencies And Gold Performance Against US Dollar

US Dollar Price Chart Weekly Performance vs Gold EUR JPY GBP AUD CAD NZD

Looking to the week ahead, markets will need to weather an economic calendar jam-packed with high-impact event risk. The release of US inflation data will likely be front-and-center with the monthly CPI report due Tuesday, 13 July at 12:30 GMT. Inflation readings are expected out of the UK, Euro-area, and New Zealand as well next week. Upcoming interest rate decisions from the Bank of Canada, Bank of Japan, and Reserve Bank of New Zealand are also on tap. This brings USD/CAD and NZD/USD into focus in particular considering market expectations for the BoC and RBNZ to signal more tapering.

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