RBC Capital Markets

Week ahead: US policy dominates the week ahead as some of the emergency income support measures start to roll off at the end of the week and markets await agreement on what will replace them. The FOMC also meets this week (Wednesday). The latest round of meeting minutes suggests that the committee seems to be moving toward an outcome‐based approach to accommodation. In other words, in coming months we expect the committee to detail how the economy would have to evolve in order for it to become comfortable adjusting policy. Perhaps Powell will provide some additional colour on what this might look like at his press conference There are no other G10 central bank meetings this week. Outside the US, we have CPI reports in the Eurozone (July; Friday) and Australia (Q2; Wednesday) and GDP reports in the US (Q2, Thursday), Canada (May, Friday) and the Eurozone (Q2; Friday). Tech and manufacturing companies dominate announcements as the Q2 earnings season continues in the US.

Month‐end flow will come into focus as the week progresses and currently looks like being USD‐negative.

EUR: Economic activity in the euro area will suffer its largest contraction on record in Q2, having declined by a record ‐ 3.6% q/q in Q1. The strict lockdown measures imposed by governments around the middle of March continued into April and May, forcing entire sectors of the economy to remain idle. Only in June did most euro area economies remove full lockdown restrictions and ease into a ‘new normal’ requiring people to adhere to social distancing rules. We estimate the direct impacts from these restrictions on activity along with the impact on consumer confidence to leave Q2 GDP down ‐11.2% q/q (‐14.1% y/y)— slightly below the ECB staff estimate of ‐13.0% q/q. See our full GDP preview here.

GBP: Informal trade talks on the UK‐EU trade relationship resume today, though markets are unlikely to look for much direction until much closer to year‐end.

AUD: Like much of the data for Q2, which marked the depths of the pandemic, accompanying restrictions, and government support measures, Q2 CPI (Wednesday) will be outsized in nature. The provision of free childcare and the 20% decline in fuel prices in the quarter will take over 2pp from headline.

CAD: The May GDP report (Friday) will be the highlight of an otherwise quiet week, with indications that the monthly gain will exceed the 3.0% m/m StatsCan ‘flash’ estimate from June 30. We thought it looked light at the time and forecast a 5.0% m/m advance in the month. All domestic sales reports support at least this gain, especially retail goods (volumes up 17.8% m/m), while construction activity also picked up substantially. The wildcard is the services sector, which has been beat up the most in the pandemic and will likely recover more slowly than the goods side.


DXY broke key technical support in Asia, with risk pairs taking this as a cue to push further higher. EUR and JPY outperform vs the USD, with the Antipodeans tracking too. Metals were also in focus once again with Gold up 2% and Silver adding another 6% today. In EM, CNH is back testing 7.00 with the rest of the EM complex mirroring this.

Headlines wise, we got clarity over the weekend that first US Phase 4 fiscal proposals should be presented today – away from this though, there was little new to report. Bigger picture, we are now also 100 days away from the US election.

The USD has weakened fairly substantially in the Asia session so far, with the DXY down 0.5% to 93.93 at the time of writing. Key levels giving way and firm risk sentiment appears to be the drivers amid a lack of negative weekend headlines. We see G10 and EM FX broadly in the green as a result.

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