Can This Week’s US NFP Favor Recent USD Up-move?
Last week, various central bank representatives, including the Fed Chair Janet Yellen and the ECB President Mario Draghi, pumped considerable volatility into the forex market. Some of the influential FOMC members, together with the Fed Chair, repeated their words of expected interest rate hike during the current year in separate public speeches, which together with better Q2 2015 GDP figures, helped the US Dollar register across the board gains for second consecutive week. The Euro couldn't enjoy the ECB President's resistance from the need of QE alteration at this stage while the GBP witnessed considerable downside as dovish comments from the Bank of England (BoE) policy maker faded speculations favoring the central bank's interest rate hike during the current year. The JPY witnessed a bit downside with numbers relating to manufacturing and inflation indicating need of further monetary easing by the Bank of Japan while the commodities kept extending their declines as Chinese pessimism seems spreading the global disinflation fears.
Looking forward, US labor market details and the EU Flash CPI are the releases that could dominate this week's trading practices while UK GDP and important PMIs may help determine the GBP moves. Moreover, Chinese official Manufacturing PMI, coupled with on-going rout of public speeches by BoE and Fed policy makers, are additional factors that are expected to continue fueling the Forex market volatility during the current week.
Labor Market Details To Command USD Moves
Even if the US Federal Reserve disappointed global markets with no interest rate hike in its September meeting, FOMC members, inclusive of the Fed Chair, kept being loud mouthed during their recent public appearances in favoring an interest rate hike this year with major focus put on improvement in labor market details. Hence, labor market details, including NFP, Unemployment rate and Earnings growth, are what the most market players would look for in order to expect an interest rate hike during the upcoming FOMC meetings in October and December.
Latest figures from the US Bureau of labor statistics, released during early September, marked the first reading below 200K by the NFP since April; however, the Unemployment rate plunged to the lowest since May 2008 and reimbursed the losses emanated from the Non-farm Payrolls. Market consensus for the September month job details, scheduled for release on Friday, signals another +200K NFP, to 202K, and an unchanged Unemployment rate at 5.1% while the earnings are likely to register a slower growth of 0.2% against previously reported 0.3% rise. Moreover, the ADP Non-Farm Employment Change, believed to be an early signal for the NFP, scheduled for Wednesday release, is also expected to remain near is previous 190K by printing 191K and can support the overall optimism for the US labor market.
With the expected resurgence of optimistic labor market details, chances of Fed's December rate hike gets strengthened if the actual marks meet forecast, favoring the USD up-move; however, global disinflation environment can call for the USD pullback should these details fail to portray the strong job market.
Moreover, some of the FOMC members and the Fed Chair are going to have public appearances during the week that can provide greater insight into the Fed's next move and can help foresee near-term USD moves. Should they continue favoring an interest rate hike in 2015, the greenback is more likely to enjoy its recent up-move.
Although, optimistic job numbers and hawkish comments from the Fed policy makers favor USD surge, some of the second-tier US economics, namely CB Consumer Confidence, Chicago PMI, ISM Manufacturing PMI and Factory Orders, are likely registering a weaker mark and can pullback the recent USD advance should they meet consensus. US CB Consumer Confidence, scheduled for Tuesday, is expected to mark 96.2 figure versus 101.5 prior while the Manufacturing PMIs, namely Chicago PMI and ISM Manufacturing PMI, to be released on Wednesday and Thursday respectively, may print 53.2 and 50.8 against their respective previous readings of 54.4 and 51.1. Moreover, the Factory Orders, up for Friday release, is likely testing the three month lows with a contraction of orders by -0.9% compared to its 0.4% advance during prior month.
EU CPI To Determine The Fate Of ECB's QE
With the renewed global disinflationary concerns, mainly emanated from China, the European Central Bank (ECB) has been facing strong pressure to extend its Euro 1.1 trillion QE that is intended to end in September 2016. However, the ECB President, Mario Draghi, during his recent testimony before the European Parliament's Economic and Monetary Committee, said "even though renewed downside risks to the outlook for growth and inflation have emerged, the central bank needs some time to analyze the economy in order to alter its QE, if needed" Hence, the Flash reading of EU CPI y/y, scheduled for release on Wednesday, becomes an important point of information to determine whether the regional economy is actually facing the disinflation risks, and the QE extension in-turn, or not.
Preliminary reading of German CPI, scheduled for Tuesday, becomes an advance signal to determine the regional inflation outlook. While the inflation number from the biggest European economy, Germany, is likely to extend its contraction with -0.6% mark versus -0.4% prior, the EU CPI is expected to tick down to 0.0% from the previously revised down figure of 0.1%. Given the actual inflation releases either match the forecasts or deteriorate further, chances of the ECB announcing QE expansion gets strengthened, pushing down the regional currency, Euro. However, an alternative rise (except the strong jump in inflation figure) can only restrict the near-term declines of the Euro.
GBP Trades To Depend Upon The UK GDP And PMIs
Unless recently, the Bank of England (BOE) was also considered to be a strong contestant for an interest rate hike other than the Federal Reserve. However, off-late, after the Chinese move to devalue its currency, speculations have mounted that the central bank would refrain from altering its current interest rates. Moreover, fresh comments from BoE policy makers have also favored a delayed interest rate hike while some of them went farther and said the next move from the central bank would be of interest rate cut than a hike. Hence, Final reading of Q2 2015 UK GDP, scheduled for Wednesday release, coupled with Manufacturing PMI and Construction PMI, to be released on Thursday and Friday respectively, become important to know the strength of UK economy.
While the GDP number is likely to match its second estimate of 0.7% growth, the Manufacturing PMI seems to have been slowed down with 51.3 expected mark versus its previous 51.5 and the Construction PMI bears the forecast of printing 57.5 number compared to its 57.3 prior. Other than the economic numbers, speech by the BoE Governor, scheduled for Tuesday at Lloyds of London, also becomes a critical event to foresee GBP moves. Even if the economic numbers are less likely to provide further harm to the GBP, dovish comments from the BoE Governor can magnify the recent UK currency decline.
Chinese Manufacturing And Rest Of The Globe Details
Ever since the Yuan devaluation, global economies have been threatened by the Chinese slowdown, the global manufacturing hub. Should the leading manufacturing indices from China continue registering the contraction numbers, below 50, chances are higher that the commodity market and the commodity currencies, mainly, AUD, NZD and CAD, can continue witnessing downside pressure. However, strong Manufacturing numbers may restrict further declines of the commodity basket and the antipodeans while longer-term moves still favoring bears unless sustainably positive readings. Chinese Official Manufacturing PMI and the Final reading of Caixin Manufacturing PMI, scheduled for Thursday, are amongst these leading manufacturing indices. While the official figure is expected to remain unchanged at 49.7 the Final reading of Caixin Manufacturing PMI may rise a bit to 47.2 from its Flash 47.00 estimate. As the PMIs are struggling in the contraction region, chances are higher that the prices of commodity and commodity currencies, namely AUD, NZD and CAD, can continue trading waters. However, a surprise expansion in these manufacturing indices may trigger a pullback in commodity prices and antipodeans.
After recently weaker Japanese economics fueled concerns for another mammoth stimulus package by the Bank of Japan, Japanese Retail Sales y/y and Prelim Industrial Production m/m, scheduled for Wednesday, become important to determine near-term JPY moves. The monthly retail sales growth figure is expected to slow down a bit to 1.3% from its upwardly revised 1.8% prior while the Prelim Industrial Production is expected to reverse its previous -0.8% downward revision figure with +1.1% gains. Should these releases match their consensus, JPY can continue its upward trajectory. However, weaker readings aren't expected to provide much harm to the Japanese currency as global economic uncertainty can continue favoring the safe haven demand of the JPY.
Australian Building Approvals and Retail Sales, scheduled for Wednesday and Friday respectively, may provide further details, in addition to Chinese Manufacturing PMIs, to forecast AUD moves. While the Building Approvals are likely to plunge negative -1.9% against its previous +4.2% gain, the Retail Sales bears the consensus of printing 0.4% mark versus its prior -0.1% decline. Considering the Chinese pessimism, only strong numbers can help the AUD witness noticeable pullback while the weaker readings can continue pulling down the Australian currency.
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