Many market participants are signalling that this week could be one of the most important for Janet Yellen, the Federal Reserve and USD.
Many market participants are signalling that this week could be one of the most important for Janet Yellen, the Federal Reserve and USD. Over the course of July the Dollar Index, a weighted average of USD performance against a basket of six other major currencies, performed well to rise from 79.80 to currently trade above 81.0. Positivity for USD stands in contrast to EUR, with EUR/USD trading at monthly lows of around 1.3425. Geopolitical tensions are rife both in the Middle East and Eastern Europe which all points to risk-off sentiment across currency markets. This has mixed implications for USD which traditionally can operate as a safe-haven for investors but at the same time may be severely affected by any potential rise in oil and gas supplies, particularly the former coming from the Middle East.
The march of USD looks set to continue and a positive week as July becomes August should cement that in place. The Federal Open Market Committee (FOMC) is unlikely to make any substantial changes on Wednesday but once again it is timeframes that the market will be keen to know. These could relate to a raising of the current 0.25 percent base interest rate, as well as the pace of the purchasing of mortgage-backed securities and treasuries, which currently stands at $15 billion and $20 billion per month, respectively. Currently, the market expects any hike in the base interest rate to occur at some point during the middle of next year, with an end to the QE programme hopefully occurring taking place in October. The Federal Reserve is due to release its policy statement at 19:00 BST. A pre-cursor to this should be the release of US GDP for the second quarter of this year, which is expected to rebound in very positive fashion after the last -2.9 percent reading. The market is expecting a release showing an increase in GDP of 3.0 percent with many participants predicting that it may be as high as 3.5 percent.
What this means for traders
There may be no end to USD activity after Wednesday’s action, with the pinch-punch non-farm payroll (NFP) report released on Friday at 13:30 BST. For four months in a row this figure has come in at above 200k, and the prediction is that this forthcoming reading could be the fifth. Market predictions come on average in the region of 230k although it is important to note that on top of the previous four figures being above the 200k mark, all four have also exceeded expectations. The figure released for June was published at 288k compared to a consensus of 212k. Combined with a positive statement and a better than expected GDP figure on Wednesday, a fifth above-expectation NFP figure in a row could ensure that the USD charge develop significant momentum by the close of trading in New York on Friday.
How will the Euro trade against the US dollar? Trade EURUSD as spot, forward and as an option today.