3 dominant themes in the FX market to watch this week

After last Friday’s NFP Report in the United States, the Fed has the green light to raise the funds rate by another 75bp in July. Such a move would put the US dollar on a strong foot against its peers, even though it has already appreciated considerably in the past several months.

Take the EUR/USD, for instance. It traded as low as 1.0071 at the end of last week before recovering a bit. But today is back testing the lows, and a move through the parity level is closer and closer.

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Also, the USD/JPY is another currency pair reflecting the US dollar’s strength. It opened the trading week on a strong note, trading above 137 and making a new high for the year.

These are two main themes to watch this week. Apart from that, the US inflation data would take center stage this week two.  

EUR/USD and the parity level

The EUR/USD exchange rate is the most important one on the FX dashboard. Therefore, the fact that the two currencies get closer and closer to parity is a big event for the FX community.

Last week, the pair traded as low as 1.0071 before bouncing after the NFP Report was released. But the bounce was most likely technical because the report showed that the jobs market in the United States remains firm.

There are currently nearly two job vacancies for every unemployed American, so the Fed has no reason to push back from its hiking plans.

USD/JPY run continues

Besides the EUR/USD flirt with parity, traders should keep an eye on the USD/JPY pair. It opened the trading week on a strong foot, despite the disturbing news that the former Japanese Prime Minister, Shinzo Abe, was assassinated.

It tells much about the strength of the ongoing trend, especially now that the exchange rate trades at the highest level for the year.

All eyes are on the US CPI data to be released later this week

Two days from now, the US CPI or inflation data for the month of June will be released. Core inflation, which excludes food and energy prices, is expected at 0.6% MoM, while headline inflation at 1.1% MoM.

Any deviation from the expected levels should trigger additional volatility in the FX market. Therefore, until Wednesday, any market movement should be taken with a grain of salt.