Happy Veterans day! Before we get into economic stuff, lets remember to take a moment of silence at 11 today to remember all the war heroes, and to pray that such wars would never happen again. No, at Invest Diva we don’t like wars. We like dancing and investing. Speaking about investing, as we get closer to the year end, the economic world’s celebrities such as Janet Yellen (Head of the US Federal Reserve) and Mario Draghi (President of European Central Bank, ECB) are getting hotter on their seats and seek out every opportunity to give a speech. On Thursday we are going to hear from both of them. Also Australia’s jobs report will be out. So we may get enough material to witness hot currency pair performances on the forex dance floor. Let’s get down to business and point out what is important about each of these, and how they could move the forex market.
1- Australia’s jobs report at 1:30 AM GMT
Let me break the news for you: jobs reports are important! The employment change of each country is a gauge of the health of their economy. This remains true in the Land Down Under, and the results could impact the value of the Aussie dollar (Mr. Aussie: AUD) against his other forex dancing partners.
For the upcoming jobs report, market participants expect the jobless rate to hold steady at 6.2%, but they also expect the Australian economy to generate a net increase of 15.0K jobs.
How would Mr. Aussie react to the outcome? There are two scenarios:
Scenario #1: Disappointing outcome
If the jobs report comes in worse than expected and/ or worse than last month’s reading, the initial reaction of Mr. Aussie is normally to dance downwards against major counterparts such as Ms. USA (the AUD/USD pair). That is because the day traders jump on a short-term sell position the second they see the results. then, we could see the pair push back up, as other investors look more deeply in the details of the jobs reports. Shockingly enough, it takes time to analyze everything. After that, long term investors get into action and plan out an investing strategy that includes Mr. Aussie’s perform against another currency. Yep, that’s the Invest Divas job. Join us.
Scenario #2: Pleasing outcome
If the numbers released are better than expected, we can expect Mr. Aussie to jump up for joy… briefly. Again. Because just like scenario #1, longer term investors get to work and add other economic factors into their analysis. Some examples are the mining sector ( because Australia relies on it for GDP growth), Chinese economy (because they are Australia’s trading buddy), and commodities such as iron ore.
2- ECB President Mario Draghi’s Testimony at 9:30 and 11:30
As I covered in my update yesterday, the hot European topic nowadays is a possible Quantitative Easing. Will the European Central Bank (ECB) print more money to increase private sector spending in the economy and return inflation to target?
Investors and analysts alike were all ears today when the head of ECB, Super Mario took the stage at Bank of England’s Open Forum. Unfortunately though, he declined giving any info on the stuff we wanted to hear. Axel Weber, chairman of UBS, told CNBC today that he is expecting the ECBto cut its benchmark interest rate by another 10 basis points in December. However, some analysts are not so sure, because of the whole US interest rate hike anticipation by end of the year.
So what up now? Two more speeches from Super Mario! He is speaking again in Brussels on Thursday. And just like today, his comments are likely to attract attention, with the next central bank meeting less than a month away. The difference is that tomorrow will not be an “unofficial bank holiday” and Fed Head Janet Yellen is up next to speak. So the volatility could be higher. If the Fed maintains its stance on interest rate hike in December, this could do the part for ECB anyway.
3- US Unemployment Claims out at 2:30 PM GMT
This is an event that happens every single week on Thursday. While it normally does create short-term volatility in the US dollar pairs, this time it is especially important for two reasons: 1) The outcome could directly effect the Fed’s December rate decision, and 2)Fed head Janet Yellen will take the stage right after it. As I mentioned in my previous update, Fed head Janet Yellen bluntly said last week that the Federal Reserve could raise interest rates in December 2015, although the raise could be very small and gradual. To top this off, the very important Non-Farm Payrolls came in fantastically positive after her testimony, giving many analysts further reason to jump on buying Ms. USA, pushing her higher up on the forex dance floor.
Diva Summary: As you can see, Thursday could bring a ton of information to investors. If you are a day trader, buckle up for a wild ride across the pairs that involve the Aussie dollar (AUD), Euro (EUR), and US dollar (USD). Trading them against each other would beg for additional volatility, so my recommendation would be to trade them against a more neutral currency such as the Japanese Yen (JPY) or Swiss Franc (CHF).
For the less adventurous and more responsible investors (True Invest Divas) I recommend that you sit back, take the info in, and then make a long term decision after analyzing all aspects.
I’m always here to help, so feel free to schedule an appointment.