We got some encouraging signs from the latest US payrolls report on Friday, with the earnings component edging up to 0.3% on the month, to lift the year on year rate to 2.5%. Even so, this is one month’s set of data, and is unlikely to convince USD bears that the rate path espoused by the Fed is still firmly ‘on track’, and in the wake of the numbers, the odds of another 25bp hike by end of year remain close to 50/50. It does however mean that the one way traffic can ease off a little, so whatever your thoughts on the economy further down the line, we can expect to see a little more ebb and flow in the price action for the majors, with the USD index surviving a test on the key support levels into 92.00.
On the data releases next week, we get a little more on the jobs market as Monday offers up the CB employment trends index, along with Fed Labour Market conditions. JOLTS on Tuesday is also one to watch out for, but non farm productivity on Wednesday could add a little more insight on wage growth if this improves. Fed chair Yellen (amongst others) often cites the tight correlation between productivity and wages, so we have been keeping an eye on this on. Even so, the algos are more likely to react to the top tier numbers, and on Friday, the Jul inflation stats, with consensus looking for the headline year on year rate to pick up a few notches from the 1.6% print for Jun. The core rate is expected to hold 1.7%.
Underlining the turnaround in the greenback was the sharp reversal in EUR/USD, failing to reclaim the 1.1900 level and eventually getting dragged back under 1.1800 to test the low 1.1700’s late Friday. At these levels, buyers stepped in ahead of the 1.1710-15 ‘breakout point’ which suggests to some that we are about to establish a new trading range. This may be a little premature and simplistic, and we would not rule out a deeper retracement – as we expect to see elsewhere to varying degrees – but we can assume 1.2000 will be a tough ask at this stage unless we get fresh European data to turn the tide again.
This post was published at Zero Hedge on Aug 6, 2017.