Dollar Mixed As Focus Turns To Employment Data Again
ActionForex | Aug 03, 2015 06:30AM ET
Dollar was mixed last week as traders sharply pushed back expectations of a September rate hike by Fed. By the end of the week, the markets are pricing in only 28% chance of September hike, comparing to around 50% at the start of the week. A major trigger in the change in expectations was the weak wage rise in Q2. The employment cost index rose a mere 0.2% in Q2, the lowest on record since 1982. Meanwhile, earlier in the week, FOMC sounded non-committal in its statement and noted that "some further improvement in the labor market" is needed before hiking. There were increasing expectations that Fed could indeed hike in December and markets are pricing in near 70% chance at or before December meeting. While the greenback ended July as the strongest major currency, it will need a strong non-farm payroll report to be released this week, in particular with solid wage growth, to extend its strength into August.
The rally attempt in dollar index was held below near term resistance of 98.14 and dipped sharply. Nonetheless, the index also drew support from 55 days EMA and closed paring much of the loss. Upside momentum is rather weak daily MACD staying below signal line. Also, the corrective structure of the price actions from 93.13 suggests that it might end any time. So, the overall near term outlook in the index is quite mixed and initial bias will stay neutral this week first. Above 98.14 will indicate regain of buying momentum and would likely send the index to retest 100.39 high. However, break of 95.45 will likely send the index through 93.13 low to extend the correction pattern from 100.39.
Stocks were also rather directionless last week. DJIA dipped to as low as 17399.17 and breached 55 weeks EMA. But the index quickly drew support from 38.2% retracement of 15855.12 to 18351.36 at 17397.79 and recovered. We've been pointing out the risk of medium term trend reversal for some time, considering bearish divergence condition in both daily and weekly MACD. But so far, there is no confirmation yet. The outlook might probably stay mixed before the timing of Fed's hike is cleared.
Get The News You Want
Meanwhile, sterling ended as the strongest major currency last week, and the second strongest for the month. There were talks that traders were building up sterling longs ahead of BoE meeting this week. The upcoming BoE meting will provide the market with an unprecedented batch of information. For the first time, BoE will release policy decisions, votes and economic forecasts together. There are speculations that some MPC members might start to vote for a rate hike. Currently, markets are expected a hike from BoE next May. Change in voting could trigger readjustment in such expectations and lift the pound.
Sterling extended recent up trend against Canadian dollar, which was the weakest major currency last week. GBP/CAD reached as high as 2.0471. Current rise is still in progress for 161.8% projection of 1.7542 to 1.9556 from 1.8150 at 2.1409. And near term outlook will stay bullish as long as 2.0093 support holds.
Another focus is RBA rate decision and Australian economic data. There were once some speculations that RBA would follow BoC and RBNZ to cut rate, in wake of falling commodity price and the turmoil in China stock market. But such speculations receded towards the end of the month. Markets are now only pricing in less than 10% chance of a rate cut this week. Nonetheless, some volatility could be triggered by retail sales, trade balance and job data from Australia. BoJ will also meet this week and no policy change is expected.
The AUD/JPY stabilized after initial fall in July and turned into range trading since then. But after all, outlook stays bearish and the fall from 102.83 is expected to resume sooner or later. Such decline is viewed as part of the consolidation from 105.42. Below 89.15 will target next support zone at 86.40, 38.2% retracement of 55.06 to 105.42 at 86.18.
Regarding trading strategies, we're holding on to AUD/USD short for the moment, which was sold back in May at 0.7784. There is no confirmation of bottoming yet. But downside momentum is getting very unconvincing with bullish convergence condition in 4 hours MACD. Daily MACD also turned above signal line again. Also, AUD/USD is getting close to key fibonacci level of 0.7182. Hence, we'd prefer to close the position on Monday open to take profit. Meanwhile, considering the number of volatility triggering events next week, we'll stay on the sideline for a week first.
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.