Majors Analysis - Comments and Indications

Majors Analysis, Comments,  Indications, fx trader, forex

02 Sep 2016

USD (NEER) – Yesterday’s manufacturing ISM greatly disappointed: not only did it drop much more than expected, it also fell below the key 50-point threshold (from 52.6 to 49.4). The release almost entirely balanced the dollar’s upswing on Tuesday, on consumer confidence, which on the other hand surprised on the upside. However, the wheels are still in motion, as today’s Employment Report will be crucial. Expectations are positive and the Fed has let on that for rates to be hiked already this month, labour market conditions must necessarily confirm their current improvement.

This is not a sufficient condition, nonetheless, especially in light of yesterday’s disappointing ISM. However, considering the overall picture, the employment and wage trends may be considered as slightly more important variables than the ISM in the present phase. Non-farm payroll growth of between 150k and 200k today would be viewed very positively by the Fed, and allow the dollar to recover most of the ground lost yesterday. By contrast, NFP growth of less than 100k would drastically reduce the probability of an interest rate hike this month.

EUR – On release of the ISM, the euro rose back to EUR/USD 1.12, but the movement may easily be reversed today if the Employment Report proves strong. The prospect of a fed funds rate hike in September should weaken the euro, pushing it down to (just) below the EUR/USD 1.10 mark. Next week’s ECB meeting will also be very important: a downside revision of growth and inflation forecasts would weaken the single currency.