This Week: EURUSD to be dragged below parity amid ECB hike, gas pipeline shutoff risks?

Rising price pressures and the response by central banks to bring them back under control continue to remain key for markets and price action.

Against such a backdrop, the European Central Bank’s first rate hike in over a decade is set to dominate the market’s collective attention amid these economic data releases and events, as well as 2Q US earnings releases:
 

Monday, 18 July

• NZD: New Zealand Q2 CPI
• GBP: BoE MPC member Michael Saunders speaks
• S&P 500: US earnings season continues (2Q results from Bank of America, Goldman Sachs)

Tuesday, 19 July

• AUD: RBA meeting minutes
• EUR: Eurozone June CPI (final print)
• GBP: UK May unemployment, June jobless claims, BoE Andrew Bailey speech
• Netflix 2Q earnings

Wednesday, 20 July

• CNH: China loan prime rates
• GBP: UK June CPI, PPI
• EUR: Eurozone July consumer confidence; EU to reveal contingency plans for possible Nord Stream 1 shutoff
• CAD: Canada June CPI
• US crude: EIA weekly crude oil inventory report
• Tesla 2Q earnings

Thursday, 21 July

• JPY: Bank of Japan rate decision
• EUR: ECB rate decision
• USD: US weekly initial jobless claims

Friday, 22 July

• JPY: Japan June CPI
• EUR: Eurozone July PMIs
• GBP: UK July PMIs
• CAD: Canada May retail sales
• American Express 2Q earnings

 

All eyes will be on President Lagarde and the ECB’s Governing Council as it is expected to raise interest rates for the first time in 11 years, given the inflation backdrop and the ample guidance by officials. Until recently, it had seemed extremely likely too that the bank would wish to follow through with its suggestion that its magnitude would be a quarter point hike.

However now, the seeds of doubt have crept in, and markets are pricing in a reasonable chance of a greater 50bp rise instead.

Most ECB watchers think this will wait until September, but the stakes are high as the single currency plummets. Perhaps the greatest downside lies in the market pricing in over 90bps of rate hikes by September.

The euro is facing a multitude of headwinds with news around the reopening of the Nord Stream 1 pipeline also worth watching as a major driver of euro assets.

If Russia decides against resuming gas flows through this critical pipeline as scheduled for July 21^st, such an apocalyptic event could make an Eurozone recession all but certain, while potentially even dragging EURUSD to the depths of 0.95.