Weekly Market Outlook: Federal Reserve and US/EU GDP in focus

July 27, 2020 10:00

Weekly market outlook

It's setting up to be another big week in the financial markets with a raft of economic data from two major economies. First up is Wednesday's 29 July statement and press conference from the Federal Open Market Committee (FOMC). With the US dollar collapsing in recent weeks, traders will be looking for some support from the Fed.

Thursday is also set to be a big day with Gross Domestic Product (GDP) figures released for both the US and Germany. The euro has been the star currency performer in recent weeks as traders flock to economies who are handling the coronavirus situation well while receiving government support like the EU coronavirus recovery fund finalised last week.

It's also another big week for company earnings with big names in Europe starting to report alongside US companies. Barclays, Volkswagen, AstraZeneca, Deutsche Bank and Shell are just some of the European heavyweights reporting this week. Of course, rising US-China trade tensions are also set to take centre stage with the escalation halting the recent stock market rally last week.

Economic events calendar

Source: Forex Calendar from the MetaTrader 5 trading platform provided by Admiral Markets UK Ltd.

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Key economic reports and markets to watch

FOMC Statement & Press Conference

US dollar bulls will be looking for some optimism from the Fed on Wednesday to reverse the collapse in the currency in recent weeks. It's likely they could be disappointed as many are expecting the Fed to only reinforce and strengthen its forward guidance on keeping a loose monetary policy stance, rather than make any significant changes at this point in time.

However, it will be interesting to see how the Fed reacts to the cracks that have appeared in America's post-Covid 19 recovery plan. The resurgence of coronavirus infection cases have caused several states to reverse the easing of the lockdown measures and in some cases even put them on hold. While the stock markets reaction has been slightly muted towards this, momentum has waned and investors will likely be eager for some additional Fed stimulus.

At the last meeting, Federal Reserve Chairman Jerome Powell already stated that he is not even thinking about raising interest rates. With worsening economic conditions for the US, the bank may just wait a little longer to see how things play out. However, it's a high-risk news event where anything can happen and many traders may wait to see how the dust settles after the press conference.

USDX monthly chart

Source: Admiral Markets MetaTrader 5, #USDX_HU0, Monthly - Data range: from 1 March 2008 to 26 July 2020. Please note: Past performance is not a reliable indicator of future results. Last five-year performance:

In the above monthly price chart of the US Dollar Index Futures CFD, it's clear to see that momentum has been to the downside in recent months with the potential for the market to collapse all the way down to historical support at $88.50, shown by the black horizontal line above.

Eurozone Economic Sentiment and GDP

Things have been picking up for the Eurozone economy with many analysts and fund managers positioning themselves for further upside in the euro currency. While there are some worries about a second wave happening in some countries, governments acted early and have largely brought the virus under control.

What investors have really enjoyed is the 750 billion euro coronavirus stimulus plan which was agreed last week. This has been shown with the euro rising to 21-month highs against the US dollar while strengthening against other majors. This week's news announcement could add fuel to the fire.

Thursday's European Economic Sentiment data and Friday's Eurozone GDP report could be a game-changer for the euro if they show even a small uptick in the numbers - a lot of the negativity in the numbers may have already been priced in due to the International Monetary Fund (IMF's) recent predictions of a contraction.

Currently, however, the euro is being seen as a stable market relative to other major currencies. The UK still has made no progress towards a trade deal with the EU and the US is beleaguered with political problems and rising tensions with China.

EUR/USD monthly chart

Source: Admiral Markets MetaTrader 5, EURUSD, Monthly - Data range: from 1 January 2009 to 24 July 2020. Please note: Past performance is not a reliable indicator of future results.

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Corporate trading updates and stock indices

While global stock markets have continued their impressive rally higher since the March lows, momentum started to wane last week. The trigger has been the tit-for-tat measures between the US and China. When Washington ordered the closure of the Chinese consulate in Houston, Texas, China responded by ordering the closure of the US consulate in Chengdu.

The escalation between the US and China could intensify as we approach the US Presidential Election in November. Investors will, therefore, be looking to the Fed on Wednesday for more stimulus to help prop prices higher. If not, the stock market may well be in trouble.

However, among this backdrop, there is a raft of earnings announcements from some major heavyweights this week. This includes:

  • Tuesday 28 July - Pfizer, McDonald's, 3M, eBay, Starbucks
  • Wednesday 29 July - Barclays, Rio Tinto, GlaxoSmithKline, Visa, General Electric, Boeing
  • Thursday 30 July - AstraZeneca, Shell, Lloyds Banking, BAE Systems, Volkswagen, Procter & Gamble, Facebook, PayPal
  • Friday 31 July - IAG, Royal Bank of Scotland, Caterpillar, Chevron, Exxon Mobil, Alphabet, Amazon, Apple

The S&P 500 stock market index is still in a broader uptrend with traders likely targeting the all-time high price level of around 3390. The question on everyone's mind is when will it get there?

SP500 weekly chart

Source: Admiral Markets MetaTrader 5, SP500, Weekly - Data range: from 14 December 2014 to 26 July 2020. Please note: Past performance is not a reliable indicator of future results.

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