Friday’s NFP would signal for a rate hike in the next FOMC meeting. Euro recovering after the recent decline

Friday’s NFP would signal for a rate hike in the next FOMC meeting. Euro recovering after the recent decline

Posted on Wednesday, May 31 2017 at 2:49 pm GMT+0000

Friday’s NFP would signal for a rate hike in the next FOMC meeting

The all-important non-farm payrolls report is due on Friday for the month of May, which will play a role in determining whether the interest rate will be raised again this year.

Prospects are currently positive, with the latest unemployment claims recording the lowest reading since 1970. Also the PMI showed the fastest pace of new job creation in three months. All those signs reinforce the possibility rate hike at the June FOMC meeting. The inflation index also reflects the continuation of inflation in convenience with the Fed’s target.

The question is, will the dollar continue to rise after the rate hike? I do not think so and I expect the Fed to subside. And as result, the dollar would weaken in the coming months.


Euro recovering after the recent decline

The euro is trying to recover for the second day after coming under pressure on dovish comments from ECB President Mario Draghi. Draghi said that monetary policy support is still necessary.

The recovery of the euro was supported by a weaker dollar, which fell after consumer confidence data that missed analysts’ expectations.

Although a break below 1.1145 could open the way for the 1.1040, I expect the Euro remain Bullish due to several factors that are backing the single currency. First, the improvement of inflation and abating deflationary risk. Secondly abating political risk in the region. And thirdly the improved French economic situation. If the new French president can reform the labor market, it may raise the European growth rate considerably and may contribute to the rise of the euro.


Sterling drops on polls

Sterling fell nearly 300 pips from last week’s high, driven by the dollar’s strength, and a recent poll showing UK Prime Minister Theresa May’s lead was falling.

A few days away from the British elections, the polls are the main driver of the markets this week. Recent polls showed Prime Minister Theresa May’s Conservatives with a 5-point lead ahead of the Labor Party.

With Teresa May calling for elections in April as an attempt to get the absolute political majority that will support her lead the process of negotiations effectively, boosting by that the pound last month. The reduction of the Conservative party’s leadership would affect the future of the negotiations process and the weight on the pound. In addition to that, the victory of the Scottish National Party will promote a second referendum for the secession of Scotland from the UK, and will have a very negative impact on the pound.

Technically, the sterling remains Bearish and might target the 1.27 and then 1.26, but you should remain cautious of Conservative Party supportive polls that would lift the cable.