US Open Preview – Dollar moves with caution ahead of NFP employment report


Christina Parthenidou, Melina Deltas, XM Investment Research Desk

Here are the latest developments in global markets:

  • FOREX: The US started collecting a 25% import tariff on Chinese products worth $34 billion on Friday midnight. According to media, China has immediately activated its countermeasures today as well, with dollar/yen remaining unaffected at 110.63 (+0.01%) as investors have already priced in the news, turning focus to the all-important NFP employment report due later on Friday instead. The dollar index, though, which gauges the greenback’s strength against six major currencies was struggling to gain ground, easing to 94.33 (-0.15%) as a strengthening euro continued to weigh on the index. Euro/dollar managed to break slightly above the 1.17 key level (+0.14%) after data out of Germany showed that industrial production had surprisingly recovered by 2.6% m/m in May after tumbling by 1.3% previously, posting its largest increase since the start of the year. Analysts had predicted a smaller growth of 0.3%. Pound/dollar paused at 1.3222, with investors waiting for the UK prime minister to give details on her Brexit plan to her cabinet today at the Chequers meeting. Yesterday, the German Chancellor who held a news conference with the British Prime Minister said that the Brexit plan was “unworkable” according to a Bloomberg report, sending the pair down to 1.3200. Euro/pound changed hands slightly higher at 0.8848 (+0.10%). In antipodean currencies, aussie/dollar stretched up to 0.7412 (+0.34%), while kiwi/dollar was the best performer, hitting a one-week high of 0.6826 (+0.50%). Dollar/loonie remained flat at 1.3138.
  • STOCKS: European equities opened higher on Friday but soon turned lower, pressured by concerns that the US-Sino trade dispute could turn into a bigger global trade war. The pan-European STOXX 600 slipped by 0.10% at 1130 GMT, with energy sectors losing the most, while the blue-chip Eurostoxx 50 was down by 0.21%. The German DAX 30 was flat, the French CAC 40 retreated by 0.09%, while the Italian FTSE MIB fell by 0.25%. The British FTSE 100 declined by 0.33%, whilst in the US, futures tracking major stock indices were mixed.
  • COMMODITIES: Oil prices were trading weaker on news that Saudi Arabia had increased its supply by 500,000 barrels per day in June to mitigate supply shortages elsewhere. Still, losses were capped by fears that retaliatory measures from China could include trade barriers on oil products. Meanwhile in Vienna, where representatives from the EU, Russia, China, and Iran gathered to discuss the Iranian nuclear deal and how to proceed with the agreement without the US, an Iranian official stated that pact members should fully compensate Tehran for US sanctions to persuade it to stay in the deal. WTI crude and Brent were last seen lower at $72.37/barrel (-0.78%) and at $76.70/barrel (-0.89%) respectively. In precious metals, gold was down on the day at $1,254.65/ounce (-0.19%).

Day Ahead: US payrolls & wage data and Canadian jobs figures on the agenda

The main event today will be the US employment report for June at 1230 GMT. Nonfarm payrolls are anticipated to have risen by 195K from 223K in the preceding month. The unemployment rate is projected to remain unchanged at a the18-year low of 3.8%, while average hourly earnings are expected to increase by 2.8% in yearly terms, from 2.7% previously.

In case these data come out stronger than anticipated – particularly on the wage front – markets are likely to begin pricing in a higher probability that the Fed may deliver four quarter-point rate hikes this year, from three that are already priced in. On the other hand, a disappointment would possibly generate some skepticism as to how many hikes the Fed will deliver this year, thereby weighing on the greenback.

Canada will also release its own employment data for June at 1230 GMT. The unemployment rate is forecast to have held steady at 5.8%, while the net change in employment is anticipated to have rebounded by 24.0k, following a sharp decline of 7.5K in May. A positive surprise in data would likely bring encouraging news to the loonie in which case a possible bullish retracement is expected.

Remaining in Canada, Ivey PMI readings will also come into view today at 1400 GMT, though it is worth noting that the loonie has recently shown little reaction to these numbers. The forecast is for the index to tick higher to 63.2 in June from 62.5 the prior month.

Later in the day, Baker Hughes will report on the US oil rig counts for the week ending June 29.

Also, today the British Prime Minister, Theresa May, will meet with her senior ministers to have a discussion for reaching a common ground on the UK’s future trading relationship with the EU after Brexit. Until now, PM May’s advisors suggested two proposals, but none of them gained the full support of her party.