We expect the start of the week to be quiet in the US as traders enjoy a long weekend, celebrating the July 4th Independence Day with fanfare and fireworks. The week ahead, however, could put markets back on the central bank watch as a bulk of employment data, including Friday’s all important nonfarm payrolls, could influence the Fed’s next rate decision. Monday’s ISM manufacturing PMI figures will not be ignored either despite the holiday mood. Elsewhere, the Reserve Bank of Australia’s (RBA) policy announcement could inject fresh volatility in aussie pairs during Tuesday’s Asian trading hours.

Nonfarm payrolls –> USD/JPY

Rate hikes could turn into a double-edged sword for central banks, but when inflation slows only gradually and the labor market remains resilient, there is no easy alternative to higher borrowing costs. Hence, Friday’s US nonfarm payrolls report could be vital in adjusting expectations for a 25 bps rate hike ahead of July’s FOMC policy meeting. Employment growth is expected to slow down to 225k, keeping the unemployment rate steady near record lows. Given the previous upbeat releases, investors might be prepared for another great report. Yet, with USD/JPY trading around the 145 caution zone, a negative surprise in the data could easily trigger some profit taking. Volatility could start sooner depending on Monday’s ISM manufacturing PMI figures and Thursday’s private ADP employment survey.

RBA policy announcement –>  AUD/USD

AUD/USD closed June’s session in the green despite the latest harsh sell-off. The pair will need a third rate increase and a hawkish outlook from the RBA to continue higher. Forecasts point to another 25 bps rate hike, but weakening domestic data and China’s uncertain outlook could resurface calls for a pause. Technically, the bulls will need to reclaim the 0.6690-0.6730 area to extend recovery.

Treasury yields –> Goldre

A rebound in the US treasury yields in June stemmed from the Fed’s hawkish tilt extended gold’s downtrend to a new three-month low last week. The impressive rally in US stocks made the previous metal less attractive, and another round of upbeat US data could add more pressure in the market this week. From a technical perspective, gold is long distance below the crucial $1,985 level, a break of which is needed to switch short-term outlook to positive.