The week ahead is exceptionally light in terms of economic data. With Europe on holiday despite the ongoing pandemic, the price action in the FX market is likely to be dominated by the U.S. stock market.
In fact, all summer it has been like this. The Dollar’s indirect correlation with the U.S. stock market was responsible for most of the price action in the most important FX currency pairs – EURUSD, AUDUSD, GBPUSD, USDCAD or USDJPY.
Some economic data may bring higher than expected volatility, but the focus sits on the EURUSD and the U.S. stocks. Will they both manage to push for new highs?
Light Economic Data Ahead
Besides the initial jobless claims next Thursday, there is no other piece of economic data out of the United States that deserves mentioning. As such, the stock market is likely to be responsible for the USD’s direction, a typical relationship during summer trading.
The Reserve Bank of Australia’s monetary policy meeting minutes are due on Tuesday. The Australian Dollar is one of the currencies that followed the stock market in locked steps during the coronavirus pandemic, a correlation expected to continue. Only an exogenous shock, like something new from the RBA, might change this relationship, and the minutes have this potential.
One day later, the OPEC-JMMC meeting will generate volatility in the oil market. As such, the CAD pairs are likely to benefit from some volatility spillover, as the Loonie dollar correlates with the price of oil.
And that is pretty much all the relevant economic data for the week. Only Friday the PMI’s in the Eurozone will be closely watched by traders and investors willing to find out how the economic recovery goes.
As such, we are left with the USD at the lows and the stock market at the highs. Both the S&P500 and the Dow Jones trade just shy below new all-time highs. The relentless bid for stocks is responsible for the risk-on reaction seen on the FX market, with the EURUSD, AUDUSD and GBPUSD trading close to the highs.
This being a summer trading month, the correlation is expected to continue. That is especially true due to the lack of important economic data able to break it.
If the Dow Jones pushes towards new all-time highs this week, look for the EURUSD to try for a new high for the year as well. Moreover, look for the USD to remain well offered, should stocks’ bid continue.