It’s the start of the month and you know what that means – it’s time to watch the Donald’s tweets for clues on major economic releases! Kidding. It’s NFP week, y’all!
FOMC statement (August 1, 6:00 pm GMT)
As widely expected, Fed Governor Powell and his team raised their interest rates by 25 basis points back in June.
What’s more, the central bank also upgraded its growth AND inflation forecasts. And as if that wasn’t enough action, the Fed’s “dot plot” also showed 8 out of 15 members supporting TWO more rate hikes this year. Wowza!
It seems like we’ll have to wait a bit longer for more action, however. See, analysts aren’t expecting any more changes this week as many of them believe that Fed members would rather wait for the September meeting when they have new economic projections and a presser scheduled before they make any more market waves.
That doesn’t mean this week’s meeting is dead, however. Read the Fed’s statement carefully and see if the central bank is any closer to having an opinion on the impact of Trump’s trade policies.
Some also point out that hawkishness is a given at this point, so any signs of dovishness could have a bigger impact than more optimism.
The ADP report (August 1, 12:15 pm GMT) will kick off Uncle Sam’s employment-related reports, followed by the employment component of the ISM manufacturing PMI (August 1, 2:00 pm GMT) and initial jobless claims (August 2, 11:30 am GMT).
ISM’s non-manufacturing PMI won’t be printed until AFTER the NFP release, so we only have the clues above to help us with our final guesses.
Speaking of guesses, analysts generally expect non-farm payrolls to clock in at 193K for the month of July, a tad weaker than the 213K net addition that we saw in June.
On the other hand, average hourly earnings are expected to speed up from 0.1% to 0.3%, while the unemployment rate is expected to tick lower from 4.0% to 3.9%.
Improvements in the labor market will support the Fed’s rate hike schedule and likely push the dollar higher. Don’t miss Forex Gump’s trading guide coming up in a few days!
Last Week’s Price Review
The Greenback is currently on course to closing out the week in third place (as of 5:00 pm GMT), which is a reversal of fortune since the Greenback finished third-to-last place last week.
The Greenback started the week by stumbling a bit, likely as an extension of last week’s theme. The Greenback quickly regained its footing, though, and was already sailing higher by the time Monday’s London session rolled around.
But as pointed out in Monday’s London session recap, there was no apparent reason for the Greenback’s climb, well, aside from short covering after last week’s slide.
As noted in Monday’s U.S. session recap, however, market analysts adopted the narrative that U.S. bond yields gave the Greenback a lift since higher U.S. bond yields signal higher rate hike expectations despite Trump’s comments last week, market analysts say.
In any case, the Greenback continued to trend higher before finally turning lower during Tuesday’s London session.
And as noted in Tuesday’s London session recap, there was no catalyst for the Greenback’s slide, but since U.S. bond yields were in retreat at the time, I conjectured that the Greenback may have been dragged lower by U.S. bond yields.
In hindsight, it’s also possible that market players may have also been bracing themselves for the trade meeting between U.S. President Trump and European Commission President Jean-Claude Juncker.
And when the meeting was about to get underway, Trump and Juncker expressed cautious optimism, which caused the Greenback to slump hard across the board as market players began unwinding their safe-haven bets on the Greenback, market analysts say. And more sellers tried to kick the Greenback lower still after Trump and Juncker officially announced that they agreed on a deal to de-escalate their trade dispute and start negotiations to lower trade barriers.
And to put this into context, remember that the Greenback has been a major beneficiary of safe-haven flows due to trade-related jitters since the narrative is that trade wars will hurt U.S. trade partners (or rivals) more than the U.S. itself.
The Greenback began to find support by the time Thursday’s Asian session rolled around, however.
And by the time the London session came, it was already clear that the Greenback was advancing across the board. But as noted in Thursday’s London session recap, there was no apparent reason for the Greenback’s strong recovery, aside from short covering of course.
However, it’s also likely that the Greenback was feeding off the euro’s weakness in the wake of the ECB presser. Another likely reason is preemptive positioning ahead of the GDP report.
Speaking of the Q2 U.S. GDP report, that revealed that the U.S. economy grew by 4.1% quarter-on-quarter annualized, which is the strongest reading in almost four years. However, the market was expecting a 4.3% rise, so the Greenback got kicked lower as a result.