NFP Preview: Will a US jobs beat on low expectations sustain the dollar recovery?
Jobs Created and Potential USD Reaction:
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EUR/USD hits key level after Catalonia suspended independence declaration. Get the full story http://on.forex.com/2ygd4cN
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DAX hits new record at 13K
Favourable market conditions, relief on the back of a reduced threat of Catalonian secession from Spain and record low interest rates and QE combined have all helped to lift the German DAX to a new record level of 13,000 today. Get full story http://on.forex.com/2kJn6yx
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Catalonia uncertainty weighs on euro. Get full story http://on.forex.com/2ysSdDB
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USD/CHF about to rip?
The USD/CHF remains fundamentally supported with the US Federal Reserve being the most hawkish central bank out there, while the Swiss National Bank being among the most dovish.
The perceived safe haven Swiss franc is currently also undermined by rising equity prices around the globe, which is also undermining gold prices. And with the Dollar Index potentially on the verge of a comeback after its decline since the turn of the year, we are now expecting to see the USD/CHF push higher.
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The Week Ahead: Euro and Canadian Dollar in Focus
by James Chen, CMT
In an otherwise relatively light week for global economic releases, the week ahead will be dominated by two major central bank decisions – the Bank of Canada (BoC) on Wednesday and the European Central Bank (ECB) on Thursday. Clearly, the Canadian dollar and the euro will be the major currencies in focus as markets assess whether the BoC will continue its policy path to higher interest rates and if the ECB will provide concrete details on plans to taper its massive economic stimulus program. Neither central bank is expected to raise interest rates next week, but any indications as to how their policy paths may unfold in coming months will have substantial impacts on their respective currencies.
Bank of Canada
A surprisingly hawkish Bank of Canada raised interest rates back-to-back in July and September, helping to fuel and extend a Canadian dollar rally and USD/CAD downtrend within the third quarter of this year. Starting in early September, however, as the battered US dollar began to rebound from multi-year lows, the Canadian dollar lost ground against the greenback. The oversold US dollar was driven higher due in part to rising expectations of a Federal Reserve interest rate hike by the end of the year.
Recent signs have been pointing to the likelihood that the BoC may become more dovish going forward. Late last month, well after the September rate hike, Bank of Canada Governor Stephen Poloz stated in a speech that there would be “no predetermined path for interest rates,” and then went on to warn that “monetary policy will be particularly data-dependent in these circumstances and, as always, we could still be surprised in either direction.” Those comments appeared to back off from the central bank’s previously hawkish stance.
On Friday, key Canadian inflation and retail sales data were released that were significantly lower than expected. The monthly Consumer Price Index for September came in at +0.2% against a prior consensus forecast of +0.3%. In addition, both retail sales and core retail sales (excluding automobiles) for August were substantially negative against positive expectations. Retail sales came in at -0.3% versus +0.5% expected, while core retail sales suffered a sizable -0.7% loss versus +0.3% expected. These weak inflation and retail sales numbers clearly do not bode well for further near-term policy tightening by the data-dependent BoC. As a result, Friday saw the Canadian dollar fall sharply, which was exacerbated by a US dollar surge. Pressure on the Canadian dollar is likely to continue if the BoC indeed strikes a dovish tone next week, and especially if the US dollar and hawkish Fed expectations both remain supported.
European Central Bank
The ECB policy decision and press conference are set for Thursday. Prior to the ECB meeting, key services and manufacturing PMI data for France, Germany, and the Eurozone as a whole, will be released on Tuesday.
Although an interest rate increase is certainly not expected from the ECB next week, euro traders will be paying extremely close attention to any indications by ECB President Mario Draghi regarding the central bank’s plans to taper its monthly asset purchases. Markets are expecting the ECB to announce that it will begin reducing those purchases starting in January, down substantially from the current €60 billion/month. The key questions remain, however, as to the specific magnitude of that reduction as well as the planned duration of the longstanding asset purchase program. The ECB will likely be wary about sounding too hawkish or aggressive in its tapering plans, as any such talk or action would undesirably exacerbate euro strength.
The euro has generally been trading in a range against the US dollar for the past three weeks. Prior to this range trading, the euro saw a prolonged period of strength since the beginning of the year, particularly against the US dollar. The ECB decision on Thursday should help dictate if and in what direction the euro may break the current trading range. One likely scenario is that the central bank may advocate a more gradual tapering process over a longer period of time than expected, in part to avoid further euro strengthening. If this is the case, the euro could take a significant hit and EUR/USD could stumble, especially if Fed-driven dollar support continues.
Canadian dollar falls sharply on BoC rate hold, dovish statement
The Canadian dollar fell sharply on Wednesday against other major currencies, even including a weakened US dollar, after the Bank of Canada held interest rates steady.
While the rate hold was widely expected, the central bank issued a dovish-leaning statement that focused on caution amid uncertainties, including “geopolitical developments and fiscal and trade policies, notably the renegotiation of the North American Free Trade Agreement.”
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The US dollar index broke out to the upside on Thursday as markets eagerly awaited the appointment of a new Federal Reserve Chair by President Donald Trump, and the US House of Representatives passed a Senate budget that will open the path to impending US tax cuts.
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NFP Preview: Will October jobs data bounce back as sharply as expected?
On Friday, the official US jobs data for October will be reported, and expectations for a sharp bounce-back from September’s weather-related negative reading are high. Last month, data for September showed a loss of 33,000 jobs, the first negative outcome in seven years, due in large part to the impact of hurricanes on food services and drinking establishments. That surprise reading, released in early October, helped contribute to a pullback for the US dollar, which had been in the process of beginning a recovery from multi-year lows.
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The Week Ahead: US Tax Reform, Central Bank Speeches and Policy Meeting Minutes
The week ahead will be slower in terms of economic data than the past week. Contributing to this slowdown will be the major Thanksgiving holiday in the U.S. Aside from speeches by heads of key central banks, including the European Central Bank, Reserve Bank of Australia, Federal Reserve, and Swiss National Bank, the week will be dominated by the release of minutes from several central bank meetings. These minutes will be from the RBA, Fed, and ECB. Also included in the week’s schedule will be US durable goods orders, New Zealand retail sales, Eurozone services and manufacturing PMI data, UK GDP, and Canadian retail sales.
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NFP Preview: Will November US jobs data extend the dollar rebound?
The official US jobs data for November will be reported on Friday morning by the US Department of Labor, and consensus expectations are pointing to a likely continuation of the strong job creation that has prevailed through much of the year (earlier weather disruptions notwithstanding).
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The Week Ahead: Weak USD, Strong EUR, and BoC-Driven CAD in Focus
The latter half of the past week saw a resumption of pronounced bearish sentiment hit the US dollar once again, as concerns over persistently weak US inflation (reinforced by lagging producer price data), strength in the euro, and rumors of China rethinking its US debt purchases helped lead to a sharp, extended sell-off for the greenback.
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The Week Ahead: Key Central Bank Decisions (BoJ, ECB) in Focus
The past week featured some key economic events, including the Bank of Canada’s interest rate and policy decision, and Australia’s latest employment data release. Stealing the limelight from these events, however, was drama surrounding a possible US government shutdown if lawmakers fail to reach an agreement by Friday night, as well as a sharp plunge in the price of Bitcoin and other cryptocurrencies due to reports of tightening regulations in Asia.
The week ahead will likely feature heightened volatility for currency markets, depending in part on developments in US government efforts to avert a shutdown, as well as two major central bank decisions from the Bank of Japan and the European Central Bank.
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NFP Recap and Week Ahead
The combination of strong job creation and unexpectedly robust wage growth prompted sharp market reactions, as anticipation of higher inflation and interest rates continued to build substantially. US Treasury yields extended their recent rise to new long-term highs, and the US dollar spiked sharply while gold prices plunged. US equity markets suffered a significant hit, extending the sell-off that began early this week on fears of accelerated interest rate increases.
Whether the jobs report’s substantially positive impact on the US dollar on Friday results in any bonafide rebound and recovery for the ailing currency remains to be seen. However, the anticipation of higher interest rates was strong and increasing well before Friday’s jobs data, and it still failed to provide the greenback with any respite from its persistent weakness.
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Gold undermined as rising yields offset support from stock market sell-off
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The Week Ahead: All eyes on inflation and interest rates
The roller coaster ride that equity markets took into correction territory this past week has been characterized mostly by dizzying plummets and much less so by hopeful rebounds. Key to the wild swings was exceptionally inflated market volatility that reflected sharply elevated fear as the short-volatility trade that had prevailed for several years rapidly unwound in the span of just a couple of days.
Helping to spark this high volatility were increased concerns about rising inflation and interest rates as signaled by surging government bond yields, notably in the U.S. Exacerbating these concerns on a global basis, the Bank of England issued a warning on Thursday that interest rates may increase more quickly than expected. When combined with other major central banks that are seen as actively moving towards policy tightening, including the US Federal Reserve and European Central Bank, this signal from the BoE further supported market expectations that the end of easy monetary policy on a global basis is likely impending.
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Week Ahead: New Fed Chair in focus as markets mull interest rate trajectory
The US dollar was still seeking direction while equity markets bounced back on Friday after a week of persistently volatile trading, as interest rates and Federal Reserve speculation continued to dominate headlines. The Fed again took center stage this past week, with Wednesday’s release of minutes from the central bank’s last FOMC meeting in late January, when interest rates were kept unchanged as expected.
Markets whipsawed severely on the release of those minutes, as investors initially took the Fed’s message to be somewhat dovish – boosting stocks and pressuring the dollar – but then digested the hawkish aspects of the minutes, reversing the initial market reactions.
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Are investors overreacting to Cohn’s resignation?
Investors panicked in response to Gary Cohn’s unexpected – although not entirely surprising – announcement that he’s resigning from his post as Donald Trump’s top economic adviser late in the day yesterday. The market’s reaction suggests investors are now even more concerned that with one of Trump administration’s strongest free trade advocates gone, that the US trade policy will head further into protectionist territory.
Investors are wondering how Cohn’s resignation will impact US trade policies and whether it will ignite a trade war, and what that may mean for monetary policy. Will Donald Trump now enact those hefty tariffs on steel and aluminium imports?
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