Forex Monthly Outlook – July 2017

GBPUSD Saved by the BOE

The pair closed the month on a surprisingly strong note as the prices shot up during to a variety of factors and helped the GBPUSD pair to close the month just below the crucial resistance at 1.3030. What should keep the bulls very much interested is the fact that the rally came about on a month when the pound was hit by the UK election results, the Fed rate hike and general uncertainty around the Brexit process and negotiations. If the pound could overcome all this and still end the month on a strong note, it gives a sense of the strength of the pound and also should give much hope to the bulls on what is in store in the future for the pound.

The early part of the month was very difficult for the pound as it was hit hard by the Fed rate hike and this caused the dollar to strengthen across the board. If this were not enough, we had the UK elections and its results which threw up a big surprise. The UK PM May had called for an election in the hope of using the disarray in the opposition ranks and gaining a much bigger majority which would have helped her standing domestically and internationally as well. But what followed was something that was not expected as the elections results threw up a hung Parliament with the Conservatives barely managing to scrape through and form a government again with the help of the DUP party. This was seen as a failure for May and weakened her position and also the pound.

It was during this time that it looked all lost for the pound as it began to drift towards the 1.26 mark and it looked as though it might fall further as the dollar steadied itself. But the BOE came to the rescue as the minutes showed that 3 of its members favored a rate hike and this helped to push the GBPUSD pair back towards 1.28 during the third week of the month. The pair was once again helped and propped up by the BOE when Carney said that they were closely looking at tapering and these were clear signals that the BOE was looking to reverse its rate policy and this further boosted the pound and helped it to close the month very strongly.

Looking ahead to the coming month, we should see whether the bulls are able to push through the 1.3030 region and for this, they need the data from the US to continue to be weak, which will in turn keep the dollar under pressure. If it does happen, then we should see the GBPUSD pair move towards 1.32 and beyond while a failure in this region would push the pair back towards the range.

USDJPY Dependent on US Data

The USDJPY pair has been pushed higher during the course of June by the weakness in the yen that was seen across the board. This weakness was more profound against the euro and the pound, due to their inherent strength over the last month, and it was seen to a lesser extent in the pair but this was enough for the pair to bounce of its range lows at around the 111 region and make its way through the 112 region during the course of the month and it did end the month strongly.

The USDJPY would have been much more bullish if not for the weakness in the dollar which was brought about by the administrative muddle. The dollar was given a boost earlier in the month by the Fed rate hike but the data before and after the rate hike has done nothing to boost the confidence of the bulls. The data has been quite weak and though the Fed has expressed confidence that it would reverse pretty soon, there have not been any signs of it as yet. This has kept the dollar under pressure and hence it has not been able to capitalise on the weakness in the yen.

Looking ahead to the coming month, the first week would be key as there is a large amount of data to be released from the US during this period. The market and the investors would be watching this data very closely to look for the turnaround that the Fed had promised last month and if it does happen and if some strong data comes in, we should see the USDJPY pair make a strong move towards 115 during the course of the month. But the lack of strong data could push the pair back towards the range and this should bring 111 under pressure and a break of that could open up 110.

Gold Prices Weighing on the Aussie

Clearly, the bulls have to be credited for the prices that we are seeing in the AUDUSD pair to close the month. They have been under a lot of pressure in recent times as weak commodity prices, especially iron ore, and strong dollar during the early part of the month had push the pair lower and for a brief while, the 0.74 region was under threat and it felt as though the region might give away for good which would have been a disaster for the bulls. But the bulls did manage to hold this region during this period and this helped the pair bounce higher during the second half of the month, helped by the general weakness in the dollar across the board.

This weakness in the dollar was brought about by administrative muddles there and also some bad economic data from the US. It remains to be seen whether the upcoming month would continue to throw up some bad data which would then help the AUDUSD pair to move even higher through 0.78 in due course of time. A strengthening of the dollar could bring the 0.75 region into the picture again. The weakness in the gold prices are not helping matters for the Aussie and this should be a matter of concern for the bulls.