Summary:

• Politics on the forefront as US-North Korea tensions intensify
• US dollar fails to recover significantly, retail sales present another opportunity on Tuesday
• CAD, AUD, GBP to see impact from local reports 

Summer is traditionally a calmer period for financial markets, with a lack of important data releases and many traders on holiday – however, it seems that politics and US President Donald Trump in particular has other ideas. His strong rhetoric directed toward North Korea has led to a sell-off in the markets as geopolitical tensions rise. Global indices fell, bonds rose and USDJPY tumbled in the aftermath of Trump’s speech. The latter has now broken below 110.00 not just from the president’s statements, but also because of US data. This means that the Fed will have a tough nut to crack over the coming months as the economic outlook has worsened, which forced traders to price-out the third rate hike this year. The FOMC minutes due on Wednesday could be a crucial moment for the US dollar as the document could confirm if the market is right.

Central banks’ minutes – FOMC (Wednesday, 7:00 pm BST), ECB ( Thursday, 12:30 pm BST)

September could be a pivotal point in market history. The ECB is getting closer to reversing its ultra-loose monetary policy and the upcoming minutes may confirm that the next meeting could be a moment of a tapering to the Bank’s QE. The Fed is a different place as it’s in the middle of its tightening cycle. However, signals coming from the central bank suggest that we may see a pause in rate hikes, while balance sheet reduction should take place in September. That is why the latter may be a focal point of the upcoming minutes, but if the Fed underlines its worries over inflation, the dollar could suffer. As a result, the EURUSD is a pair to watch this week.

US retail sales – Tuesday (1:30 pm BST)

The third quarter in the US started on weaker footing. Not only did inflation disappoint, but also other figures including soft indicators such as the ISM. However, the last NFP print was a much needed reprieve that could herald better days for the USD. While the currency lost value last week because of the tension between North Korea and the US administration, a rebound in retail sales could spur a greater rebound of the oversold pairs. On the other hand, another weak print could be a nail in the dollar’s coffin, confirming that a third hike this year is rather unlikely. That is why the USDJPY could react strongly to the data.

Other economic data – UK CPI (Tuesday, 9:30 am BST), Australia employment report (Thursday, 2:30 am BST) Canada CPI ( Friday, 1:30 pm BST)

The upcoming week won’t be important just for the USD. Additional crucial reports are due that may change the outlook for each currency. Each report could have an impact on pairs such as GBPCAD, GBPAUD, AUDCAD, so be prepared for volatility to rise.