Hats off to Greece! They managed to take another step closer to making their debt problems vanish when Parliament approved the austerity program and gave the go signal for its implementation. Now that the hullabaloo over the recent Greek victories has somewhat died down, traders are starting to figure out what could come next.
As I pointed out in my article about the top three stories that dominated the market for the first half of 2011, the European debt crisis is an issue that keeps popping up every now and then. This is likely to continue for the latter half of this year as Greece will attempt to end its debt problems once and for all by securing more funds from the European Union (NYSEARCA:EU) and International Monetary Fund (NYSE:IMF). If all goes smoothly, Greece could convince the credit rating agencies that a sovereign debt default is no longer likely.
And let's not forget that, once the debt crisis is out of the way, the ECB would most probably return to its rate-hiking ways. Recall that ECB President Trichet is determined to drive inflationary demons out of the euro zone, but ongoing debt concerns in the region forced the central bank to hold off any monetary policy changes.
But before we conclude that everything's gonna be fine and dandy for the euro zone, remember that there are still plenty of roadblocks ahead. For one thing, belt-tightening measures will probably put a significant drag on Greece's economic growth. Also note that Greece could be just the tip of the iceberg in this euro zone debt mess and the European bank stress test results due this month could reveal worsening debt problems elsewhere.More Tightening Moves from China?
The Asian giant is set to release its CPI and second quarter GDP figures this month, and these could determine whether we'll see more rate hikes from the People's Bank of China (PBoC). Last time I checked, the PBoC hiked their reserve ratio by another 0.5% last month as annual CPI hit 5.5%, which is way above the central bank's 4.0% target inflation.
There's no denying that the PBoC is infamous for its aggressive tightening moves. And why wouldn't they be? China itself is notorious for printing double-digit, eye-popping, jaw-dropping, stronger than expected economic figures!
Another set of strong Chinese data could set off even more tightening moves from the PBoC. However, China's economic picture is probably no longer as rosy as it used to be, mostly because the PBoC's rate hikes started to work their magic. Some economic reports, such as retail sales and industrial production, fell short of expectations in April and May.
With that, the second quarter GDP figure could also miss the mark and possibly convince the PBoC to calm down. A bleak CPI reading could also reassure the central bank that their tightening moves have already done enough and that they should start normalizing monetary policy soon. Keep your eyes and ears glued to the Chinese CPI release on July 11 2:00 am GMT and their Q2 GDP report due July 21 2:00 am GMT!U.S. 2nd Quarter GDP to Settle QE3 Debate
Uncle Sam plans to end July with a bang as the U.S. 2nd quarter advanced GDP is scheduled for release on the last trading day of the month. Mark your calendars because the U.S. GDP report due 12:30 pm GMT on July 29 is gonna be legendary!
You see, because the U.S. enjoys being the center of attention, it releases three versions of its quarterly GDP: the advanced, preliminary, and final readings. Since the advanced GDP figure is the earliest release, it tends to spark the biggest reaction from the markets.
If that ain't enough to put you on the edge of your seats, let me remind you that this particular GDP report could be crucial in determining whether the U.S. economy would need further stimulus or not. If you've been doing your homework and reading my blog regularly, you'd know that the Fed's decision to end QE2 on schedule made huge waves in the forex market. But if the upcoming growth report reveals that another set of quantitative easing measures is necessary to keep the U.S. economy afloat, that'd cause quite a ruckus!
Bear in mind that the U.S. is still reeling from surprisingly weak jobs data, which puts a downside risk to consumer activity and overall growth. No jobs, no spendin', you know what I'm sayin'?
There you have it! Those are the three themes and events which I predict could set off the biggest set of fireworks in the markets this July. Got any trade ideas for these market movers? Don't be shy to post them in our forum threads for the different currency pairs: