Weekly market overview September 3 - 7

Narrow ranges - this is the shortest description of the price action for major currencies. Euro and Pound had a slight decline while commodity currencies got hit versus the greenback which has been strengthening on Thursday and Friday last week because of two factors: Trump’s threats to increase import sanctions against China and Non-Farm Payrolls report. U.S. equities went back down from record lows despite the robust employment report and wage growth accelerating in August. Treasury yields gained the momentum again as the Federal Reserve interest rate hike in September is almost priced in by the market. Emerging markets currencies pulled back from lows on technical consolidation and liquidity which came back to the financial markets. Bank of Canada and Reserve Bank of Australia were the only banks among major countries holding the interest rate decision this past week. Two more central banks will meet in the next week - European Central Bank and Bank of England. None of them is expected to make any changes in their monetary policy. Let us dive deeper and have a look at the assets one-by-one.

The U.S. dollar index has been supported by economic data. Non-Farm Payrolls reported 211K jobs added in August which was very positive for the greenback. But even more optimistic data came from the Average Hourly Earnings component which showed growth for 0.4% in August, the strongest growth pace in over a year. This fact takes the Fed’s concerns about the lack of wage growth off the table and fourth rate hike this year is more probable. More confirmation of that suggestion came from the recent hawkish comments by FOMC Members: Kaplan, Rosegreen and Mester. Secondary reports were in green as well: ISM Manufacturing and Non-Manufacturing Purchase Managers Indices showed growing business activity in the U.S., while Trade Balance has narrowed the negative spread between imports and exports. Next focus is on Inflation and Retail Sales report which are also expected to be positive for the U.S. dollar index versus major currencies.

Non-Farm Payrolls
Source: academyfx.ru

EUR/USD failed to extend the recovery at 1.1650 resistance and bounced back down to 1.1542. Except the greenback strength driving the pair, there was also a certain weakness in economic reports from the Eurozone. German Factory Orders, EU PMI and Retail Sales did not support the single currency. EUR/USD bulls had a lack of momentum also because of trade war threats from the U.S. administration. Trump tweeted another wave of import tariffs against China and Japan for the total amount of $267B. These concerns are not the best environment for Euro to grow. European Central Bank meets on Thursday next week and there is nothing positive to wait from the regulator as the interest rate will be left unchanged, most probably. ECB President Mario Draghi made a clear statement regarding the monetary policy for the foreseeable future and economic reports did not have any significant changed from the last rate decision. So further slide is expected towards 1.1450/00 support range.

Sterling failed to break through 1.3000 resistance in the middle of the previous week and bearish pullback to 1.2900 followed on risk aversion and greenback’s strength. Positive comments on Brexit deal with EU were overshadowed by rumours that Bank of England is not on the position to tighten the monetary policy until the first half of 2019. British Manufacturing and Construction PMI were not supportive factors for GBP/USD. Inflation expectations remained the same but Halifax House Price index went down recently. All that point for ‘unchanged’ verdict of BoE which meets next week for the rate decision. Monetary Policy Committee Head Carney will host the press-conference on Thursday and his comments might be much dovish than it was previously anticipated. If that happened, GBP/USD could test support as low as 1.2700. In case if the story of trade tensions of the U.S. with Japan reinforced next week, we might see GBP/JPY as the weakest pound cross-rates. The only positive perspective here is in GBP/AUD and GBP/NZD crosses which managed to rise on the commodity currencies weakness. Another risk factor for cable next week is the earnings and unemployment report on Tuesday as some of its components were revised down recently.

Australian and New Zealand dollars hit 2-year lows. AUD/USD was going down on the back of three reasons: worries about the impact of trade wars for Chinese economy and weakening yuan, New Government in Australia with an uncertainty about their reaction of the economy slowdown and dovish Reserve Bank of Australia which left the interest rates unchanged and expressed a cautiousness on the tightening perspective. We believe that the decline will continue for Aussie and it can break through 70 cents versus the greenback much sooner than some traders would have expected. Kiwi was also weakening but the pace was not so dramatic as for Aussie. NZD/USD went down to 0.6534 after New Zealand reported negative data and next PMI report should confirm that trend, according to the market consensus.

USD/CAD traded in the range of 1.31/32 this past week. There were three fundamental reasons for that bullish spike compared to the recent periods. First is the lack of any progress in the U.S. - Canada negotiations on the trade deal. Second is the Bank of Canada which left the interest rates unchanged despite some of the analysts were predicting a hike from the regulator. The statement following the rate decision brought more uncertainty to the next perspective and traders kept buying USD/CAD on that forecast. The third reason was almost the biggest one as Canadian jobs surprisingly declined in August for 51K jobs. This comes against the recent tendency and the next rate hike by BoC becomes under a huge doubt. USD/CAD could test 1.3500 level in four weeks in case if the Canadian economy will keep surprising investors in the same manner.
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