Financial markets ahead of key economic releases

Financial markets ahead of key economic releases

Posted on Monday, July 31 2017 at 5:24 pm GMT+0000

USD ahead of employment data

In fact, the US labor market does not seem to be suffering from any difficulties, and the unemployment rate is at its lowest level.

The sharp decline in the dollar lately is due to political tensions, internal tensions related to the Russian file and interference in the elections. The failure of the US administration to achieve tax reform and increase government spending and even its failure to repeal and replace Obamacare, and the latest reason is the disappointing in inflation rates.

From here, we should focus more on the wage rate in Friday’s data instead on focusing on the number of new jobs added. A rise in wage rates will back the dollar easing of its 13 month low, otherwise a disappointing figure would confirm Fed’s doubts considering inflation levels. Therefore, exposing weakness to the US currency.


Focus turns towards inflation data in the euro area

As for the euro, the focus this week will be on inflation data, including the CPI and manufacturing and services PMIs.

In previous weeks, the euro was the biggest beneficiary of the dollar’s weakness as it managed to record a fresh two-and-a-half year high on ECB comments about tightening monetary policy.

To continue its bullish trend and maintain the recent momentum the euro might need new motives that may be materialized by good inflation data. Good data could accelerate the ECB’s actions and push the single currency to extend the rally in the direction of 1.1860.

A drop below 1.1650 would postpone the bullish path and drive the pair towards 1.1580.


Interest hike decision is tied to the results of future UK data

There are many reasons for members of the British MPC to start discussing tightening monetary policy and possible interest rate hike, but I think this will be dependent on future economic data.

Despite a marked improvement in growth rates, inflation remains above the central bank’s target, consumers spending are still weak, and uncertainty is still surrounding Brexit negotiations.

I expect the British Central Bank to remain steadfast and signal the possibility of a forthcoming interest rate hike later this year after monitoring the economic data.

There is scope for the pound to target 1.33 but this requires optimism and data improvement and possibly further decline in the Dollar Index.


Aussie ahead of RBA meeting

I do not think tomorrow’s monetary policy meeting would produce any change in interest rate. Although the labor market is seeing remarkable improvements, where the unemployment rate is at its lowest level since 2013, especially after the creation of 62000 new jobs in June.

The labor market is growing for the ninth month in a row but there are still some issues regarding growth and inflation. Growth rates are still weak, due to shrinking exports, increased imports, weak government investment and inflation is still below the central bank’s target.

Aussie has rallied nearly 700 pips in the recent months and I think the RBA is trying to limit this rally so we may see a minor correction in the near-future.