Weekend summary and the week ahead
August is here! And so is a new trading week kicking off a busy start already. Greek stocks finally reopened and promptly dropped more than 20% at the open. This had a minor impact on Mr. Euro though as it dropped a tiny bit versus Ms.USA (EUR/USD pair) and it actually went up a bit versus the Japanese Yen (EUR/JPY pair.) Greek banking stocks were the worst hit.
China isn't doing so well either as a key China economic indicator took a sharp turn for the worse, with the final reading for the Caixin China purchasing managers index for July surprising with a drop to a two-year low. The reason why forex traders are about this is that the Aussie dollar needs a stronger Chinese economy for further gains. Australia depends massively on China for their exports.
Speaking oft Australia, Mr. Aussie could be in for a wild ride this week. We’ve got FIVE major economic events in the Land Down Under, which means five opportunities to take advantage of the additional volatility to grab some pips. The hot events could also give us more clues as to which direction Mr. Aussie would be dancing in a long run.
The fun starts on Tuesday when Australia prints its retail sales and trade balance both at 1:30 AM GMT report for the month of June. the retail sales report has been coming out weaker than expected results for the past three releases and that two of those even suffered downward revisions later on. With that, there could be a good chance of seeing another downside surprise this time, which might spur Aussie weakness.
The trade balance has also been coming in below expectations in the past three releases, with a couple of reports undergoing negative revisions and one enjoying a small upgrade. This suggests that the odds are also tilted to the downside for this one, possibly putting more weight on poor Mr. Aussie which is not too bad for our bearish AUD/USD trade.
On Thursday, Australia will release its June jobs report and probably show a 12.5K rise in hiring, a faster pace of increase compared to May’s 7.3K figure. Meanwhile, the unemployment rate is expected to climb from 6.0% to 6.1%.
Last but definitely not least is the RBA’s official statement on monetary policy on Friday at 1:30 AM GMT, which is different from the central bank’s interest rate announcement. This report is released on a quarterly basis and contains more deets on the economic and financial factors that influenced the policymakers’ decisions and biases. The earlier release back in May 8 suggested that the central bank is prepared to lower interest rates again if necessary. Policymakers also cut their growth forecasts for the next couple of years, citing the delay in the recovery of non-mining investment as one of the main reasons for the downgrades.
Oil prices fell to their lowest levels in six months today, knocked by fresh evidence of growing oversupply and the data highlighting slowing demand in China. No wonder Ms.USA started the week with a kick against her major dancing partners, since oil prices and the US dollar have an inverse relationship.
More to move the US dollar could be the ISM Manufacturing PMI which is scheduled to be released shortly after the New York market open at 2:45 PM GMT. US trade balance is scheduled to be out on Wednesday at 1:30 PM GMT. Export demand and currency demand are directly linked because foreigners must buy the domestic currency to pay for the nation's exports. Export demand also impacts production and prices at domestic manufacturers which ultimately affects the US dollar strength against other major currencies. The number increased in the past three releases from -51.4B in May to -41.9B in July. However all releases were lower than expected.
Most important releases out of the US will come out later in the week with Unemployment Claims on Thursday at 1:30 PM GMT and Non-Farm Employment Change (NFP) on Friday at 1:30 PM. Given the fact that the fed is looking mainly at the labor market to make a decision on a potential interest rate hike in September, you could imagine why many forex traders are going nuts about these releases. The NFP is expected to rise to 224K in August and a better than expected outcome will not only have an immediate positive impact on the US dollar, but it also will increase the chances of a rate hike in September, prepping Ms. USA for a long term rally on the forex dance floor.
Mr. Kiwi has been playing with our hearts in the past couple of weeks when he decided to jump up instead of falling on the new New Zealand interest rate cut. Hot data from the Kiwi land this week could finally bring Mr. Kiwi to his senses and push him down in case the GlobalDairyTrade (GDT) index out on Tuesday continues the path of the previous 3 releases which came in way below expectations.
New Zealand quarterly jobs report and unemployment change are also scheduled to be out on Tuesday at 11:45 PM GMT, which is first thing on Wednesday's Sydney session. Last quarter's employment change came in worse than expectations and this release is expected to come in even worse, which could finally get Mr. Kiwi on track with further drops.
Invest responsibly and I'll be back for more tomorrow!