In a week where one trading month ends and another begins, it makes sense to consider where the major currencies may be heading into from both a technical and fundamental perspective.
Starting with the US dollar, last week’s strong move higher dissipated by the time the market closed on Friday with the index ending the day as a shooting star candle, and this bearish sentiment has continued with the index drifting lower to trade, at time of writing, in the
12,000 region. However, this minor technical correction is only to be expected given the surge higher for the dollar during October, and
does not invalidate the reverse head and shoulder pattern we have been seeing developing on the daily chart.
From a fundamental perspective, there are three major events for the US dollar this week, the first of which is the FOMC on
Wednesday, which many traders are taking to be a ‘non event’ as this year’s projected rise in interest rates is expected in December.
Indeed the CME FED Watch Tool is currently showing almost universal consensus the FED will keep rates unchanged this week, with an identical consensus expecting a raise in December.
The second major event is, of course, the NFP on Friday where the market is expecting a return to positive following last month’s
negative number, and unless there is another surprise, the key metric to watch is the average hourly earnings data, which last month came in much better than expected at 0.5. One reason this metric is of particular interest is the number of times since 2001 0.5 appears to
have been a significant high and peak for average earnings before the number turned lower. Indeed in recent times we only have one example where average earnings recorded a higher number of 0.7 which was in March 2003 before the number collapsed back to 0.1 in April. The significance of this release is that it is considered a leading indicator of consumer inflation as any increase in labor costs are eventually passed on by companies to the consumer. On Friday expectations are that the release is expected to come at at 0.2 which is seen as the median, but any repeat of last month’s figure or would give the USD a further boost.
And the third of our USD events is the possibility that Donald Trump will announce the name of the new FED chair, but whether he re-
appoints Janet Yellen or decides on one of the two front runners, namely Powell or Taylor is second to the fact that Trump has a unique
and rare opportunity to influence longer term US monetary policy by virtue of the fact that he is tasked with appointing a number of the 7
FED seats that make up the Federal Reserve. Meanwhile the odds on favourite for Chair appears to be Powell who can best be described as the ‘continuation candidate’.
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