Stay in step with market opportunities and get insights, actionable trade ideas and dedicated support.
Heading into the week ahead, the macro calendar is quieter. But for as long oil remains supported, the US dollar forecast will remain bullish. Not only will oil prices be important for determining the direction for the dollar and USD/JPY, but bond yields too, and by extension, risk appetite.
The EUR/USD edged lower this morning, down for the second day, ahead of the release of US CPI. The pair has been consolidating in a tight range, and yesterday’s hawkish rate hike from the ECB failed to deliver the breakout many traders were hoping to get. With the US dollar finding renewed support in recent days, the risk to the near-term EUR/USD forecast is tilted to the downside.
The NFP arrives today with the odds of a rate hike from the Fed slipping back to around 50% and correspondingly the dollar sold off again yesterday. That was due to comments from Fed’s Waller who said next week’s CPI could determine whether he votes for a hike or hold. He was thus a lot less hawkish than the Fed Chair Kevin Warsh.
For much of this week, the EUR/USD has been edging lower with the US dollar regaining some ground after last week’s sell-off that was triggered, in part, by the bond market worries. Investors have been unwilling to bet further against the US dollar so far this week ahead of Kevin Warsh’s keynote speech at the Jackson Hole summit, due later today.
This week’s main theme has been a drive away from the dollar and into currencies of economies with better fiscal discipline and lower debt levels. The short-lived rally in US long-dated bonds fuelled rallies in gold and silver prices, which, along with the like of Swiss franc, benefitted further from increased haven flows.
Today’s US jobs report was the first of the four major releases before the Fed’s next meeting in September. As it turned out, this was a pretty bad report and as a result, the odds of a September rate hike fell to around 44% from north of 55% before the data was released.
The near-term dollar forecast took a hit yesterday on the back of the Japanese intervention and hawkish-leaning ECB and BoE meetings. But the US dollar need not fall too far from here. If anything, I am expecting a swift recovery especially against currencies of economies that rely on oil imports. Crude prices have resumed higher after yesterday’s drop halted a sharp rally.
Earlier today, we saw some headlines that Pakistan may announce later that talks between Iran and the US will resume. Apparently, Iran’s finance minister Abbas Araghchi is set to visit to Pakistan. But this doesn’t mean talks will start with the US. So, I would be careful reading too much into this, but markets have reacted and we saw European indices bounce back while crude oil dropped a good $4 from its earlier highs in immediate reaction.
It was a good sign to see the EUR/USD post a small gain yesterday despite the rebound in oil prices. This morning saw the currency pair hold around that 1.1700 handle ahead of the release of US PPI data later, and more importantly, US-Iran peace talks in Islamabad. It is far too early for markets to re-focus on fundamentals yet.
Risk sentiment remained downbeat in the first half of Friday’s session, as the drop in oil prices proved to be short-lived after Trump extended the pause in planned strikes on Iran’s energy plants. Crude oil prices climbed a further 4% to extend its surge as fighting continues. The likes of the German DAX index fell sharply along with US index futures as risk appetite soured.
The markets badly needed something to trigger a bit of volatility and it looked like nothing was to happen heading towards the weekend. But then, bam! Judging by market’s reaction to a lengthy social media post by Donald Trump, it looks like the trade war has officially re-started with China.
Next week, we will have plenty of US employment data that could impact the EUR/USD forecast, while from the Eurozone CPI and German retail sales are among the highlights.
