Meanwhile, the Asian region is expected to remain transfixed upon China with a data dump due at the start of the week.
Amid the broad focus on monetary policy, markets found fresh guidance from the Federal Reserve in the past week. A semi-annual testimony tinged with certain degrees of dovishness by Federal Reserve chair Janet Yellen triggered a broad risk-on atmosphere within markets. The prospect of an extension to the relatively accommodative climate for markets inspired global indices to notch fresh gains, with the likes of the Dow Jones touching a fresh all-time high at 21580.8 on Wednesday. Adding to the optimism for markets in the Asian region had also been the improvement in China’s June trade numbers, highlighting the robust demand for goods in the region.
Although US’ June CPI and the first of major bank earnings in the US have yet to be released at the time of writing, most indices look set to close the week on a positive note. In contrast, the US dollar index appear to be further weighed as markets pared back their rate hike expectations.
Monetary policy in vogue
Monetary policy is expected to remain a key focus for the week ahead with central bank meetings in both the Eurozone and Japan set to unfold. Although no change in monetary policy is expected for both the European Central Bank (ECB) and the Bank of Japan (BoJ), the market may find ECB President Mario Draghi’s words during the post-meeting press conference one to follow.
While the US Federal Reserve presented a more dovish stance on back of the lack in inflation growth, the ECB appears to be moving in the opposite direction. ECB President Mario Draghi’s in a speech in June highlighted to markets that ‘deflationary forces have been replaced by reflationary ones’, raising tapering expectations within the market and fanning hopes for EUR bulls. The scheduled appearance of the ECB President at the Federal Reserve’s August Jackson Hole conference have further fuelled expectation of tapering after his last attendance in 2014 marked the commencement of their quantitative easing.
Although the ECB is widely expected to only move from September, it will not stop the market from making its own interpretation of the ECB’s views. A key market to track the sentiment with respect to the press conference will be the EUR/USD pair, and overtly hawkish nodes could push prices up to test the $1.15 psychological barrier once again.