Dollar Edges Lower $
| Posted in Forex Trading | Posted on 5:16 PM
Forex Markting
Written by John Kicklighter, Currency Strategist
- Dollar Edges Lower as NFPs Solidify Investor Sentiment and Shake Out Remaining Volatility
- Euro Traders Cautious of Favorable Forecasts from Officials’ When Yield Spreads Grow
- British Pound Looks ahead to Next Week’s BoE Rate Decision for Underlying Trend
- Canadian Dollar Could be the Most Speculatively Wound Major with the BoC Expected to Hike
- Japanese Yen: Will the Bank of Japan Further Extend its Policy Effort or Take to Intervention?
- Australian Dollar Traders Should Expect much Support from the RBA’s Policy Meet
Though liquidity was winding down quickly into the close of the week, we would nevertheless see a significant shift in the traditional market gauges for risk appetite Friday. With the help of a dubious nonfarm payrolls (NFP) report, risk appetite would start climbing before the US exchanges came online. The performances from the more sensitive asset classes were highlighted by a 1.3 percent advance from the S&P 500, a 7 bps rise in the 10-year Treasury note’s yield and 0.6 percent climb from EURJPY – all painting a consistent picture of improved risk appetite. Naturally, the safe haven US dollar would find itself on the opposite side of this positioning. However, the bearish progress marked is perhaps more discouraging than many would have afforded. With Friday’s performance, the Dollar Index closed a fourth consecutive daily loss and notched its lowest close since August 11th (a period when the currency was catalyzing its reversal from a two-month bear trend). A loose comparison between the price development of August and the two months that precede that; it is clear that that the ranks have been far more accommodative of selling the single currency than they have of buying it back up from ‘depressed’ levels. This does not necessarily establish a long-term bias for the greenback; but it is certainly something to keep in mind.
For the more recent swells in price action, today’s scheduled event risk would play a significant part – more than would have been expected. Though the August NFPs and ISM service sector activity reports are fundamentally important updates to the health of the US economy and notable market-movers in their own right; speculative interests were at a natural disadvantage Friday. Recently, we have seen the employment report (historically the greatest price driver for the US dollar on a consistent basis) temper its influence over price action as market participants took a big-picture view of labor. In turn, this would leave the market open to the natural withdrawal of liquidity into the weekend. A quiet end to the week was even more seductive given the fact that US markets (an important catalyst for speculative interests world-wide) would be closed Monday for an extended holiday weekend. Nevertheless, the smaller than expected 54,000 net loss in payrolls would be met with enthusiasm. IT helps that the previous month’s reading was revised up from a 131,000 to 54,000 contraction and that private payrolls had grown more than expected (by a net 67,000 new positions). Yet if we look at the details of this report, we see that the birth/death adjustment would account for a 115,000 increase to the overall figure, the broadest measure of unemployment rose to 16.7 percent (the standard merely advanced to 9.6 percent), and the total jobs added this year have tallied only 723,000. Considering the total number of American’s laid off in the preceding few years measured 8.4 million, it will take years at this pace to return to the ‘normal’ of just three years ago. As for the ISM non-manufacturing report, the 51.5 reading was a seven-month low for the largest sector in the economy. It is hard to distill lasting confidence from this data.
Looking ahead to next week, it will be a slow and choppy start for the greenback as US banks and exchanges will be offline Monday. However, beyond this lull, traders will look for prevailing risk winds and watch out for an expected policy announcement from President Obama.
Euro Traders Cautious of Favorable Forecasts from Officials’ When Yield Spreads Grow
Outside of the infectious and constant influence of investor sentiment, the euro would not find much fundamental drive from an otherwise quiet Friday session. The docket brought the final readings of the service sector activity reports for August (the Eurozone measure was revised modestly higher) and the regional retail sales report for July. The consumption figure offered a mixed update with a disappointing 0.1 percent increase for the month and stronger 1.1 percent annual read. Despite the questionable fundamental mix, however, the shared currency would still surmount a three-week high against the dollar, book an impressive bullish reversal against the Swiss franc and win a fourth advance versus the pound. This seems a continued effort to unwind the risk premium that was revived when financial uncertainty was stirred. It is difficult to see this recovery making too much progress though as Greek yield spreads near record highs and the EUR/USD Libor spread hits a 14-month high.
British Pound Looks ahead to Next Week’s BoE Rate Decision for Underlying Trend
The UK’s sole PMI service sector gauge for August did little to help the sterling with a 16-month low from an otherwise vital component of an unstable economy. Fundamental activity may have a little more influence next week though with a number of big events topped by the BoE rate decision. The central bank will not change its rates; but will an ECB, BoJ and Fed expansion of stimulus encourage the MPC to do the same?
Canadian Dollar Could be the Most Speculatively Wound Major with the BoC Expected to Hike
USDCAD was one of the biggest movers when the market processed the confidence-boosting US employment data. Ultimately, this was a move conceived and interpreted through Canada’s economic links to the US; but next week, the northern neighbor may pave its own way. The BoC rate decision is perhaps the biggest piece of scheduled event risk with economists predicting a 25 basis point rate hike to 1.00 percent.
Japanese Yen: Will the Bank of Japan Further Extend its Policy Effort or Take to Intervention?
Quoting unnamed officials today, a Bloomberg article proposed that Japanese policy makers were hesitant to intervene on behalf of their currency for fear of US disapproval. The yen is extraordinarily high against most of its counterparts; and it is a real struggle to support growth and normal market functioning. For this reason, we will look to the Bank of Japan for guidance on what to expect for growth and policy.
Australian Dollar Traders Should Expect much Support from the RBA’s Policy Meet
With investor confidence bolstering growth-dependent markets Friday, it comes as no surprise that the high-yield Australian dollar would put in for an advance of its own. For the week ahead, the currency will be especially dependent on this exogenous push. Without it, traders will be left to suffer the disappointment of a hold on interest rates and a probably bearish slant on the economy from the RBA.
Related posts : Forex Trading
Comments (0)
Post a Comment