FUNDAMENTAL REVIEW FOR THE WEEK (24 - 28 June 2024)

The past week on the foreign exchange market was mixed. The dollar was under pressure from weak retail sales statistics, while in the Eurozone, political tensions and more hawkish statements by the Central Bank on easing monetary policy now play a big role. Here it is worth taking into account the Bank of England, which last week almost completely repeated Jerome Powell’s rhetoric that “more data is needed for the first rate cut.” In the moment, this quite noticeably “battered” the value of the British currency.

The current week begins again with negativity in geopolitics.

Israeli Prime Minister Netanyahu abandoned the agreement previously approved by the Israeli military cabinet and announced by Biden, and said that after the end of the operation in Rafah, he would launch an offensive on Lebanon. The US has said that an Israeli attack on Lebanon could lead to Iran's direct entry into the conflict, which could trigger a major war in the Middle East. In the event of an escalation of the conflict, investors will again have protective assets in favor - the dollar and gold.

The upcoming five-day trading period will be quite eventful with economic data and politics. In terms of economic reports, it is worth highlighting US consumer spending inflation on Friday. The US core RFE is expected to fall to 0.1% mm and 2.6% yoy. The factor is bearish for the dollar if the statistical bureau’s forecast turns out to be close to the actual “output” numbers.

If you look at the stories, the Fed begins to announce a rate cut when the US benchmark RFE falls to 2.5%yy-2.6%yy. However, here Fed members can play it safe again and wait for June inflation before announcing their readiness to consider a rate cut. Especially given the fact that Powell said he expects inflation to rise from June "due to last year's low base."

It is also worth paying attention to the US data, which will be released on Thursday and Friday - it is possible that the US GDP for the 1st quarter will be revised upward in the final reading. Weekly unemployment claims, durable goods survey of consumer sentiment according to Michigan: will complement the picture on the state of the US economy.

Politics will come to the fore in the coming weeks.

The risk of a major war in the Middle East will remain a focus.

The first round of elections in France on Sunday will put downward pressure on the euro.

For the dollar, the debate between Trump and Biden in the coming week may provide a “fly in the investor’s ointment.”

Of course, the candidates' programs are important for the markets, whether Trump allows for the possibility of military intervention in any conflicts, withdrawal from NATO, withdrawal from the climate agreement, the candidates' plans for tax reforms and the fight against the growing budget deficit. If the debate takes place in a more or less calm mode, then this will not cause a strong reaction from “big money” and all attention will be paid to the economic indicators voiced above.