2017-AUG-06 Weekly FX general outlook.

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USD Friday pullback after a stronger than expected NFP reading of 209,000 jobs created versus 180,000 expected. Getting out of oversold ranges will ease pressure from a key part of market players who’ve been  shouting about upcoming retracement. Traders who have been holding deep losses buying USD are finally getting a bit of relief. The big question now is about depth of such pullback. We have many questions from members of our community: Is this a trend reversal or just a correction? What are possible levels to renew dollar shorts in second case? Let’s try to break it down.

First of all we need to have a deep look at that NFP report. Was it strong enough to put the third rate hike from Fed back on the table? Obviously - not. 209K jobs created is not a huge surprise. We’ve seen even more monthly jobs created recently. June NFP revised up to 231K from 222K. This number comes in line with US economic growth. July Average hourly earnings has matched the expectations of 0.3% MoM. It would not be something new to say that US economy operates at almost full employment. 4.3% is good number. But would these facts erase doubts on the third rate hike from Fed this year? Can one single report outweigh a huge flow of negative and mixed data, that cause the greenback sell-off during last several months? THe answer is on the surface…

Profit taking took place upon the release. Some of traders were expecting for some event to shut open positions together with trading terminals and start enjoying their vacation season. EURUSD closed the week just 102 pips lower of multiple month's highs. Closing price 1.1772 is rather strong level to talk about northwards continuation. But we’ll show more technicals in our deep outlook.

Another big story of the past week is Bank of England on-hold rate decision and worth economic outlook. I watched the Carney press-conference closely and I cannot get out of a feeling that he experiences pressure from someone big. The main purpose of such pressure, I suppose, is an interest to keep pound at low levels. Who can have benefits of that? Exporters. Especially in the scope of the long Brexit process. No one can cancel the international competition, which is tightening nowadays. And what is one the instruments to win this competition? A low currency exchange rate. One of the correspondents expressed an interest of big number of market players, expecting BoE to start tightening cycle. He asked straight: What do you need to see before hiking the rates? But seems like we have a divergence of interests here… Pound reacted with a sell-off. EURGBP closed the week above psychological 90 pence level.

Aussie, together with the sterling, should face further depreciation despite the fact that it’s up more than 10% year-to-date. This growth is also puts pressure on the Reserve Bank of Australia. Try to read some details of their 2017 GDP forecast. They cut it this week despite strong reports on Australian economy.  Nothing to hide, they have a strong interest to stop the Aussie uptrend. We’ll keep also our attention to RBA Governor Lowe Speech on Thursday next week. We do not think that Reserve Bank of New Zealand will step out of the line to follow RBA in monetary policy strategy.   

Same story with precious metals. Gold and Silver are off the local highs. USDCAD has a modest retracement, while Oil failed to break important levels after weaker than expected US Crude Oil Inventories report. Interesting picture in some exotics. You can read more in our Deep Outlooks (for active members).

The upcoming week is light on important economic reports. We do not expect sharp moves as the thin volume vacation season would have its impact for trading next week. Most important events for the FX market will be US Inflation figures. PPI on Thursday and CPI on Friday is going to give us some understanding about possible Federal Reserve’s justifications or excuses later this year for another rate hike.

Please note, that this article comes from my archive. Check the actual date in the header.
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