The Bank of Japan (BOJ) meeting overnight is the first big macro focus for the markets, with the Bank of England (BOE) primed for an interest rate hike later this week, according to a leading City analyst.
However, before we get to that, Monday (30 July) has started with yet another fall by the yuan.
"That's enough for the dollar to start the week on the front foot, and to remind the market that the trade spat is far from over. Yuan weakness probably keeps the Asian currency block under some pressure, and if the BOJ leaves policy on hold, merely lowering the CPI forecast, the yen is unlikely to be strong this week," said Kit Juckes, Head of Forex at Société Générale.
Eyes will also be on the BOE which meets on Thursday (2 August) "and will probably hike interest rates," Juckes added. "We also expect the Reserve Bank of India (RBI) and the Czech National Bank (CNB) to hike that day. Of that lot, the one whose currency is most likely to benefit is the CNB, with EUR/CZK drifting lower."
Switching tack to the euro, the SocGen analyst said EUR/USD needs to get back to $1.1690 by the end of play Tuesday (31 July) to avoid a fourth consecutive monthly fall; the longest run since the 9-month fall in 2014-15.
"That said, if we close here, it will be a third monthly close within a 0.25% range, which tells its own story. CFTC data show that after a very sharp reduction in net long euro positions in May/June, these have stabilised. The last two months have also seen 10-year yield differentials meander in a 10 basis points (bps) range, so the real problem is a lack of new macro drivers."
The week's candidates for that come in the form of Q2 Eurozone GDP on Tuesday, and the US Federal Reserve, where no-one expects a hike this week, but almost everyone expects one in September, Juckes added.
“EUR/USD can react more to positive euro news now than to negative, and so we have a chance of getting to EUR/USD 1.1750 and above this week and making a move out of the current range in August.”
