The Week Ahead In FX

The week ahead looks likely to be dominated at the early stages by developments at the meeting between oil producers and consumers and this, if any structure is decided upon, could greatly effect many asset classes. The Dollar has weakened last week as Oil has rallied and additionally next week we look to see if there is a continuation of today’s poor performance in banking stocks and global equities. The German IFO will be keenly awaited after a very poor ZEW number. While potentially greatest interest in the UK over the coming week will be BoE Gov King and several other MPC members testifying to Parliament’s Treasury Select Committee on the May Inflation Report. Data-wise, the UK sees the release of the Jun CBI distributive trades survey on Wednesday, which should reveal a deterioration in the headline reported sales balance. The data week kicks off in the United States with April S&P/Case-Shiller composite home price index will be released on Tuesday.Downward pressure has been consistently registered via median home prices (seen via new and existing home sales releases), ultimately dictating the downward path in the housing market. Alongside this weakness, we expect the S&P/Case-Shiller home price index will decline -16.0% y/y in April, versus the -14.4% y/y decline seen in March. Home prices have been declining at an accelerating rate (y/y) dating back to January 2007, reflecting weakness in the housing sector that is unlikely to change any time soon. The FOMC monetary policy statement will be published Wednesday, 25 June at. With the two-year treasury rate now well above the current fed funds rate and the real rate of interest standing in negative terrain the committee is well position to engage in an extended pause at 2.0% for the foreseeable future. Despite hawkish rhetoric emerging from the Fed in recent weeks we do not expect this will result in policy tightening any time soon.

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