Labor Market Details To Play Crucial Role This Week

Last week, the US Dollar Index (I.USDX) registered its consecutive third weekly decline as disappointing US economics, coupled with not-so-hawkish FOMC, continued shadowing the expectations concerning near-term interest rate hike. The EURUSD secured highest gains in seven weeks as market players expect ECB’s QE is paying out the troubled region with improved economics and could help avoid the deflation soon. Further, uncertainty ahead of the UK general election, coupled with weaker GDP and Manufacturing PMI, pulled back the GBP gains while dovish comments during recent monetary policy meetings of the BoJ and the RBNZ, in addition to the downgraded inflation forecast by the BoJ, hurt currencies of Japan and New Zealand. Moreover, speculations concerning the cut in benchmark interest rate by the RBA strengthened during last week, on the back of lingering Chinese economics, and damaged the Australian Dollar.

During the first full week of May, labor market details from US, Australia and the New Zealand are likely to fuel considerable volatility in the forex market. Moreover, monetary policy meeting by the Reserve Bank of Australia (RBA), Chinese Inflation and Trade details together with the UK Trade Balance and Construction and Services PMIs, are some of the crucial events that could provide busy days to the Forex market participants. There isn’t any important announcement out of the Euro-zone except the on-going efforts of the Greek government to please international creditors to avail emergency funds ahead of its May 11 meeting.

To know the details of these crucial economic announcements, stay tuned to Forex Calendar

NFP to Rule This Week’s US Economic Calendar

Even if the monthly reading of Factory Orders, scheduled for Monday, and the ISM Non-Manufacturing PMI, scheduled for Tuesday, could reveal important details about the world’s largest economy, Friday’s NFP and Unemployment Rate for the month of April, also the ADP Non-Farm Employment Change, scheduled for Wednesday, are crucial releases to help determine the chances of Fed’s near-term interest rate hike.

As said earlier, the US labor market details have played a crucial role in determining the future monetary policy actions by the Federal Reserve and hence will be important for the Forex market players to determine near-term USD moves. Having registered the lowest reading in more than a year, the 126K mark, in its March announcement, the US NFP is likely to reimburse its previous losses and could print a 231K number, coupled with the lowest unemployment rate since May 2008, to 5.4%. Moreover, the ADP also signals an improvement from its previous 189K to 192K in its Wednesday’s announcement. Considering the recent improvement in quarterly wage detail, released last week, a healthy print of these employment details signals toward improved US fundamentals and a near interest rate hike by the Federal Reserve.

US NFP and Unemployment Rate

Source: www.tradingeconomics.com

Factory Orders’ detail is likely to reveal the highest order growth since September 2014, by printing 2.1% number, against its previous reading of 0.2% which was the first positive number in six months, while the ISM Non-Manufacturing PMI is likely to print a bit softer number, to 56.2 against 56.5 prior. Moreover, weekly Jobless Claims is also expected to print a hard number of 275K as compared to its previous reading of 262K.

Given the headline employment details’ ability to match the consensus, together with the improvement in Factory Orders, pessimism surrounded by the recent weakness in US economics can be countered and the FOMC becomes more likely to practice an interest rate hike sooner than expected, that in-turn could trigger considerable US Dollar advance.

Other than the US employment details, numbers from the New Zealand and Australian labor markets, scheduled for announce on Tuesday and Thursday respectively, are also likely to provide meaningful information to determine near-term moves of both these antipodean currencies. The New Zealand Employment Change is likely to soften a bit to 0.8% from its prior release of 1.2% while the Unemployment Rate is expected to shrink to 5.5% after rallying to the 5.7% previously. Moreover, the Australian Employment Change is expected to print the lowest reading in three month, to 4000 against previous addition of 37,700, and the Unemployment Rate could increase a bit to 6.2% after releasing 6.1% level previously. With the recent dovish tone of the RBNZ, weaker labor market numbers from New Zealand could magnify the NZD losses while the AUD is likely to witness considerable downside should the employment details match consensus.

Monetary policy meeting by the Reserve Bank of Australia (RBA), scheduled for Tuesday, is also an important event to determine near-term AUD moves in addition to the labor market numbers. The RBA avoided cutting down its benchmark interest rate in April meeting and fueled the AUD; however, with the pessimistic outlook for China, Australia’s largest trading partner, the central banker is more forced to introduce another interest rate cut in order to sustain the economic growth. Other than the rate decision, quarterly economic forecast, to be made public during next week, could also provide meaningful information relating to central banker’s overview of the economy. The bank did downgrade its economic outlook in its recent monetary policy and a reflection of the same in quarterly report could provide considerable downside to the AUD. Should the central banker avoid cutting down the interest rate, asking for some more time to reflect on weaker Chinese details, the AUD is likely to witness a knee-jerk up-move, followed by the stronger decline, while a cut in the benchmark interest rate could magnify the AUD decline.

Having witnessed weaker reading of HSBC Final Manufacturing PMI, details relating to Chinese Trade Balance and inflation numbers, scheduled for Friday and Saturday respectively, become important to foresee the moves of AUD, CAD and NZD. After plunging during the month of March, to 3.1B, Chinese Trade Balance is expected to print 34.5 billion of Trade surplus for the month of April. Moreover, consensus relating to the CPI reveals that the inflation fuelled by 1.6% against its previous reading of 1.4%. With the Chinese central bank rolling its sleeves to do whatever it takes to fasten the economy, weaker readings could again force the central banker to announce additional measures, avoiding the recent ones introduced in previous week. Hence, weaker readings out of China is likely to provide additional drag to the commodity currencies; however, readiness on the part of Chinese central bank to fuel the economy could lessen this damage in expectation of more easing.

UK Economics And The General Election

UK PMI details, namely the Construction PMI and the Services PMI, scheduled for release on Tuesday and Wednesday respectively, together with the UK Trade Balance, schedule to release on Friday, are likely important details to help determine near-term GBP moves. Both these PMIs are likely signaling a weaker reading as compared to their previous releases. While the Construction PMI could print a 57.6 against 57.8 number, the Services PMI, important to determine UK GDP, is likely soften to 58.6 against its 58.9 prior release. Moreover, the Trade Balance is expected to reveal improved trade deficit to -9.8B against 10.3B.

Other than the economic details, the UK General Election, to be held on May 07, becomes an important event to foresee moves of UK currency. Opinion polls ahead of the election continue supporting the coalition government and an uncertain political environment. Given the actual economic readings meet market expectations, and the election outcome matches opinion poll, it could become a strong deterrent factor for the GBP as the coalition government could be failed to support the UK economy.

 

Follow me on twitter to discuss latest markets events @Fx_Anil

 

Anil Panchal
Market Analyst
Admiral Markets

At any use of the analytical material taken from the site of company Admiral Markets, and the secondary publication on any other resources, the rights to intellectual property for a dealing center «Admiral Markets», the reference to the company site is obligatory.

 
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