**The Week Ahead in Forex: CPI, Earnings, and Tariffs – Welcome to the ‘Tunnel of Truth’**
*Original Analysis by Joseph Trevisani, FXStreet, compiled and expanded with additional market insights.*
As global financial markets prepare for a pivotal stretch of economic data and corporate earnings, traders are entering a period referred to as the “Tunnel of Truth.” This stage, typically occurring just past the midpoint of each quarter, brings forward a rush of critical corporate earnings reports, inflation data, central bank updates, and political developments. The upcoming week promises to be a decisive moment for equities, currencies, and broader risk sentiment.
Let’s take a deep dive into key events, macroeconomic themes, and FX market expectations.
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### Key Calendar Events Influencing Forex Markets
The main drivers guiding trader sentiment in the coming week include:
• **U.S. Consumer Price Index (CPI) – Thursday, July 18**:
– Arguably the marquee release of the week. The CPI will offer direct evidence of whether inflation is softening in the U.S. economy.
– The Federal Reserve continues to signal that it needs more confirmation before altering interest rates. With three months of softer inflation data, another weak CPI could significantly alter expectations for rate cuts as early as September.
– A hotter CPI print would reinforce the Fed’s wait-and-see approach and could drive up the U.S. dollar.
• **Producer Price Index (PPI) – Wednesday, July 17**:
– Serves as a forward-looking gauge of consumer inflation as producers often pass costs onto consumers.
– The June PPI showed subtle signs of price moderation, but volatility in energy prices could affect the July reading.
• **Federal Reserve Communications – Various Throughout the Week**:
– Multiple Fed officials are slated to speak, and traders will watch closely for any consensus leaning toward dovishness.
– Hints at a September rate cut or continued caution will have a large impact on bond yields and USD direction.
• **Corporate Earnings – Throughout the week**:
– Earnings season begins in earnest this week with major banks (JPMorgan Chase, Citigroup, Wells Fargo) posting Q2 results.
– Tech firms including Netflix and Tesla will also report, potentially affecting risk appetite and equity-linked currencies like the AUD and NZD.
• **U.S. Retail Sales – Tuesday, July 16**:
– Measures the health of consumer spending, which remains resilient.
– A robust print could suggest ongoing economic momentum, complicating the Fed’s plans for policy easing.
• **China’s GDP and Industrial Production – Monday, July 15**:
– Economic growth from China will provide insights into global demand, especially for commodity currencies (AUD, NZD, CAD).
– Continued weakness could invite further stimulus from the People’s Bank of China, which would pressure the yuan and possibly global equity markets.
• **U.S.-China Trade Policy and Tariffs**:
– Trade tensions between the world’s two largest economies are reemerging. Former President Donald Trump has expressed interest in imposing immediate tariffs on Chinese goods if reelected.
– While markets may discount post-election speculation, new threats or announcements about tariffs can increase volatility in safe haven assets and have repercussions for global FX pairs.
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### CPI and the Fed: All Eyes on Inflation
The U.S. CPI will likely define the tone for monetary policy and market risk sentiment. Here’s what markets are looking for:
• **Headline CPI Forecast**: Bloomberg consensus expects year-over-year CPI at 3.1 percent, down from 3.3 percent in May.
• **Core CPI Forecast**: Analysts anticipate core inflation, which strips out food and energy, to ease slightly to 3.3 percent year-over-year.
• **Market Response Scenarios**:
– Softer-than-expected CPI: Boost bond prices, lower yields, weigh on the dollar,
Read more on USD/CAD trading.