FX Week Ahead - Chinese & US Manufacturing PMIs; Eurozone Inflation; US NFP & Unemployment Rate; US Holiday

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06/29 TUESDAY | 21:00 GMT | CNY NBS MANUFACTURING PMI (JUN)

There are signs emerging that the world’s second-largest economy is beginning to cool off. China’s credit impulse (growth in credit as a percentage of Chinese GDP) has started to fade, which has historically aligned with weaker PMI readings. Indeed, the upcoming data release is due to show that China’s manufacturing sector is still growing, but as a slower pace. According to a Bloomberg News survey, the June China NBS manufacturing PMI is expected to cross the wires with a reading of 50.8, down from the 51.0 reading in May. Even a slight deceleration in Chinese PMI readings may prove problematic for major currencies like the Australian and New Zealand Dollars.

06/30 WEDNESDAY | 05:00 GMT | EUR INFLATION RATE FLASH (JUN)

The flash June Euro area inflation rate (CPI) report is the top item of interest for the Euro this week alongside ECB President Christine Lagarde’s speeches on June 29 and July 1. The inflation data are due midweek, and according to Bloomberg News, the headline Euro area inflation reading is due in at +1.9% from +2.0% (y/y), while the core reading is due in at +0.9% from +1.0% (y/y).

With inflation expectations have dropped the past few weeks – since their yearly high on May 18 at 1.643%, the 5y5y inflation swap forwards have declined by -7-bps to 1.575% – it appears that the ECB will continue to beat the drum of ‘lower for longer,’ which may prove to be an albatross for most EUR-crosses in a world where many other major central banks are moving closer towards normalization.

07/01 THURSDAY | 13:45, 14:00 GMT | USD MARKIT MANUFACTURING PMI (JUN), USD ISM MANUFACTURING PMI (JUN)

The US economy is continuing to grow at a robust pace, at least in the manufacturing sector, which accounts for around 12% of all US jobs. Both readings of the sector due out from Markit IHS and the Institute of Supply Managers (ISM) suggest that June activity matched the torrid pace in May. The Markit Manufacturing PMI survey is due in at 62.6 from 62.1, while the ISM Manufacturing PMI is expected at 61 from 61.2. Cumulatively, running at a pace near 60 suggests that US economic data momentum is improving as vaccination efforts move forward, suggesting that the near-term outlook for corporate earnings remains strong.

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