Market Insight for the Week Ending 30 June

This week's first release is the Canadian inflation statistics for Tuesday at 1:30 PM GMT+1. Headline YoY inflation unexpectedly rose in April to 4.4%, 0.1 points higher than March's 19.-month low of 4.3%. Consumer pricing expectations going into the event were 4.2% for the year ending in May, and 3.7% for the year-over-year core inflation (down from 4.1% in April).

The release of this week's inflation data will be extensively scrutinized by traders for any indications of weakness; any appreciable departure from experts' forecasts might increase CAD pair volatility and affect market pricing for the forthcoming rate decision. On July 12, the Bank of Canada (BoC) is scheduled to meet. According to market estimates, there is a 70% chance that the BoC will raise the Official Overnight Rate by 25 basis points to 5.0%, the highest level since 2001. This comes after this month's 25bp hawkish boost.

On Wednesday at 2:30 AM GMT+1, the monthly CPI indicator for Australia's May inflation will be monitored. The median consensus predicts that consumer prices will drop from 6.8% in April to 6.1% in the year ending in May.

The Reserve Bank of Australia (RBA) is due to meet on July 4, and according to current market expectations, there is a nearly 60% chance that the central bank will maintain the Official Cash Rate at 4.10%, as opposed to a 40% possibility that it will raise the benchmark rate by 25 basis points. The inflation release will be watched closely by AUD pairings; any significant departure is expected to heighten volatility during the Asian session and may have an impact on market pricing.

On Friday at 10:00 AM GMT+1, the YoY (Flash) inflation rate for the euro area will be revealed. It is predicted to drop to 5.7% from 6.1% in May. YoY core inflation is projected to rise from 5.3% in May to 5.5% in June. The European Central Bank (ECB) may find it difficult to raise rates beyond investors' expectations, which could weigh on the euro and ultimately encourage selling. This is because the euro area entered a mild technical recession in Q1 of this year after two consecutive negative GDP quarterly readings, and because inflation in the euro area has been cooling since its peak of 10.6% in October 2022, with the exception of the jump in April.

Markets are still pricing in the prospect of an ECB rate increase of 25 basis points in July and September, with a peak deposit rate anticipated to be slightly around 4.0%. Check out the EUR/USD monthly timeframe for more information. The rebound that we have witnessed since September 2022 may be a pullback within a larger, longer-term decline.

The US Federal Reserve's favored inflation indicator, the latest core PCE price index, will be released on Friday at 1:30 PM GMT+1. MoM is forecasted to be 0.3% in May (down from 0.4% in April), while YoY is predicted to stay at 4.7%. Investors anticipate that the Fed will raise the Fed Funds rate one more on July 26 by 25 basis points, retain that rate, and then start reducing it in 2024.

Here is where the Fed and investors start to part ways. The Summary of Economic Projections (or "dot plot") from the most recent FOMC meeting, where the Fed paused (or skipped) policy firming, showed that FOMC members anticipated a median Fed rate as high as 5.6%, indicating another two rate rises.