With the FOMC into its blackout period (between 17th and 29th July, with no communication on monetary policy in front of the July meeting) and an extremely light economic calendar, traders will be struggling for catalysts for much of this week. However, Thursday’s European Central Bank (ECB) meeting promises to be more interesting than most of late. The flash PMIs will also be key on Friday. 

  • ECB meeting has become interesting after the recent announcement of the strategic review.
  • Flash PMIs may add some volatility on Friday, but markets will quickly look towards the FOMC at the end of July.


ECB likely to re-confirm its dovish credentials

The ECB recently announced the results of its strategic review. Previously, the inflation targeting was “below, but close to, 2%”. This has now been changed to just “2%” with the Governing Council committing to symmetry. 

This allows for a degree of temporary tolerance of inflation above 2% before tightening policy (so structurally more dovish). But also, within the window of the economic projections, the ECB does not even see inflation hitting 2% with the post-pandemic period of recovery inflation. The latest economic projections from June are below.


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This leaves to door open to a much longer ultra-loose monetary policy, or perhaps even more dovish policy. There will clearly be significant debate on the Governing Council, with the policy hawks fighting against this view, however re-confirmation of a dovish ECB stance is the very least we can expect. We are likely to see the beginnings of this in this week’s meeting.

For now, this means continuing to front-load the PEPP asset purchases and most certainly pushes any taper-talk deep into the long grass.

Impact: EUR to see elevated volatility and negative pressure. Could also add some support to risk plays too.


Flash PMIs to give us little real direction on Friday

Friday will be the other interesting day for the economic calendar with the flash PMIs (first reading for July) for major economies. According to consensus forecasts:

  • Eurozone (at 0900BST) – PMIs to hover around current levels. Manufacturing a slight edge lower to 62.5 (from 63.4) and Services improving to 59.6 (from 58.3). This would see the Composite PMI bang on 60 (up from 59.5).
  • UK (at 0930BST) – both to slip slightly but remaining in strong expansion above 60. Manufacturing to drop to 62.7 (from 63.9 in June), and Services slipping slightly to 62.0 (from 62.4). This would leave the Composite PMI at 61.9 (from 62.2 a month ago).
  • US (at 1445BST) – both sectors are expected to remain around current levels with Manufacturing at 61.9 (from 62.1) and Services at 64.8 (from 64.6).

For the US, there has been a rolling over of ISM data (official data) and the Markit PMIs (unofficial) last month. This is expected to level off in Markit’s data this month. 

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With little other data of note this week there may be a spike of interest but unless there are

any significant negative surprises (especially for the US or UK) then there will be little to change any narrative on monetary policy.

Subsequently, markets may very quickly look past this data and then begin to settle in for the FOMC on Wednesday 28th July.

Impact –a brief bout of volatility is possible but markets are likely to settle fairly quickly.




Broadly, there are two factors to look out for, the ECB and flash PMIs. Undoubtedly the ECB is the main event. We are looking for a dovish ECB and if consensus is anything to go by, the flash PMIs could be relatively muted.