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New Zealand job growth expected to reboundThe New Zealand dollar is showing limited movement on Tuesday. Early in the North American session, NZD/USD is trading at 0.6052, down 0.03%. New Zealand releases the fourth-quarter employment report later today. Employment is expected to rebound with a 0.3% gain, after a decline of 0.2% in the third quarter, which was the first decline in over three years. The unemployment rate is expected to rise to 4.2%, up from 3.9% in the third quarter. The Reserve Bank of New Zealand will be keeping a close eye on the job numbers as it charts its rate path. The RBNZ has kept the cash rate unchanged at 5.5% for five straight times, which likely means that its steep rate-tightening cycle has run its course. That has the markets hunting for clues of a rate cut, which is expected later in the year. At the most recent meeting in late November, the RBNZ had a hawkish message for the markets, warning that inflation remained too high and if it rose unexpectedly, the central bank would "likely need to increase further". I'm doubtful that the RBNZ is really planning to raise rates, barring a shock where inflation moves higher. The RBNZ's aim may be to pour cold water on rate-cut expectations and allow high rates to continue to push inflation lower. If key data such as the upcoming employment report are solid, it will provide the RBNZ with more room to continue to keep rates in restrictive territory. Conversely, weak job numbers would raise pressure on the RBNZ to lower rates in order to boost economic growth. NZD/USD is putting pressure on resistance at 0.6150. Above, there is resistance at 0.6211 There is support at 0.6054 and 0.5993
by OANDA
Macro Monday 31 ~ Dallas Fed Manufacturing Index (Key Levels)Macro Monday 31 U.S. Dallas Fed Manufacturing Index This Index is compiled from a monthly survey conducted by the Federal Reserve Bank of Dallas to assess the health of manufacturing activity in the state of Texas. It provides insight into factors such as production, employment, orders, and prices, offering a snapshot of economic conditions in the region. Why is the Dallas Fed Manufacturing Index Important? ▫️ As stated above the index covers manufacturing activity in the state of Texas, the state of Texas ranks 2nd only to California in factory production & comes in at 1st as an exporter of manufactured goods, thus Texas is an important state for gauging manufacturing & production in the U.S. economy. ▫️ Texas also contributes an incredible c.10% towards the U.S. Manufacturing gross domestic product making the index an important metric to consider towards potential GDP trends in the U.S. ▫️ The Dallas Fed Manufacturing Index (DFMI) is one of several regional manufacturing surveys that feed into the national Purchasing Managers Index (PMI). The PMI is released later this week on Thursday 1st Feb thus the DFMI on Monday will give us an early indication of the potential direction of the PMI later in the week. FYI, I will be covering the PMI for you on Thursday so stay tuned for that. How to read the index? A reading above 0 indicates an expansion of the factory activity compared to the previous month; below 0 represents a contraction; while 0 indicates no change. The Chart The chart only dates back to 2005 so we have a limited dataset however we can still see definitive levels of importance and trends over this shorter historic backdrop. A few findings from the chart: The + 36.8 Level Since December 2005 any time we have hit the +36.8 level on the chart it has typically represented a peak in manufacturing and production signaling that a decline would likely follow. This has occurred 3 times and each time within 20 – 23 months of this +36.8 peak we had a recession or a financial crisis. 1) December 2005 21 Months later we had the Great Financial Crisis. 2) June 2018 20 months later we had the COVID-19 Crash. 3) April 2021 23 months later the U.S Banking Crisis occurred in March 2023 resulting in 3 small to mid size banks failing. - The remaining banks being saved by the Bank Term Funding Program (BTFP) which appears to have successfully contained the contagion for now. The BTFP is ceasing in March 2024 👀 ▫️ We can see above that in the event we reach the +36.8 level in the future, history informs us that within 20 – 23 months major economic issues will likely present. If we had known this back in April 2022. After April 2022 the S&P500 fell 15% to its recent lows. ▫️ The National Bureau of Economic Research (NBER) could declare the current period we are in as a soft recession. For the last six recessions, on average, the announcement of when a recession started was declared 8 months after the fact meaning we will would only get confirmation of a recession once we are 6 - 8 months into it. Its worth noting that some recessions were confirmed by the NBER after the recession was over. - 36.8 Level A reading below the -36.8 level has historically confirmed a recession. We have not hit this level since the COVID-19 Crash with May 2020 being the last time we have been at this level. Periods in Contractionary Territory There have been 2 previous periods where we have remained in contractionary territory for greater than 6 months. These are worth reviewing as we have been in contractionary territory for the 20 months now (April 2022 - Present). 1) Sept 2007 – Nov 2009: We fell into contractionary territory during the Great Financial Crisis for 26 months. From 2009 to 2016 the index seemed week oscillating around the 0 level and not really breaking out into persistent expansionary territory until 2017 forward. 2) Jan 2015 – Oct 2016: We fell into contractionary territory for 21 months however there was no recession. 3) Apr 2022 – Present: We are currently on month 20 of contraction. Now this could be just like point 2 above whereby we recover to expansionary territory in month 21 or 22 (Jan - Feb 2024) however if we do not, we are moving towards a timeline similar to point 1 which was the 26 month Great Financial Crisis. Q1 of 2024 will be very revealing in terms of what we can expect next. In the event we end up in contraction for 26 months or if we hit the -36.8 level we can presume, based on history, that we likely have a recession on our hands. And, if we recover into expansionary territory maybe we have got away with it this time 🙂 You can clearly see that the Dallas Fed Manufacturing Index is significant for assessing the U.S. economy because it provides timely insights into the health of one of the nation's key economic sectors: manufacturing & production. Since Texas is a major hub for manufacturing activity, trends observed in the Dallas Fed index can offer valuable indications of broader economic trends. It is one of several regional indices that contributes to a comprehensive understanding of the manufacturing landscape, aiding policymakers, investors such as ourselves, and businesses in making informed decisions about the state of the economy. The current economic environment just gets more and more interesting every week Thanks for coming along again folks 🫡 PUKA
ECONOMICS:USDFMI
by PukaCharts
USD/JPY edges lower ahead of Tokyo Core CPIThe Japanese yen has started the week with slight gains and is trading at 144.39 in the European session, up 0.16%. It was a rough week for the yen, which declined 2.5% against the US dollar, which has looked sharp against most of the majors since New Year's. US nonfarm payrolls ended 2023 on a strong note. The economy added 216,000 jobs in December, compared to November's downwardly revised 173,000 and above the estimate of 170,000. The unemployment rate remained at 3.7%, below the estimate of 3.8%. As well, wage growth rose 0.4% m/m and 4.1% y/y, higher than the estimates of 0.3% and 3.9%. The employment report was stronger than expected, which could lead the Fed to delay plans to lower rates. Job growth remains resilient and the wage growth data indicates that inflation remains strong in the labour market and is still too high for the Fed. The Fed fund futures markets reacted to the employment report by lowering the odds of a March rate cut to 64%, compared to 68% just prior to the employment report. The Fed has acknowledged that it plans to trim rates but failed to provide any details of timing in the minutes of the December meeting. The Fed may decide to prolong the pause in rates until the second half of the year unless there is a significant drop in inflation or unforeseen weakness in the US economy. The Fed does not seem in any rush to cut rates and the markets may be getting ahead of themselves by pricing an initial rate cut in March. Japan's Tokyo Core CPI, which will be released on Tuesday, is expected to ease in December to 2.1% y/y, compared to 2.3% in November. Core inflation has exceeded the Bank of Japan's 2% target for 18 straight months, but the central bank has insisted that it will not tighten monetary policy until wage growth rises. 144.80 and 145.80 are the next resistance lines There is support at 143.60 and 142.63
by OANDA
GBP/USD - Pound edges higher ahead of UK job dataThe British pound is showing little movement at the start of the week. In Monday's European session, GBP/USD is trading at 1.2576, up 0.22%. It's a busy week for UK releases which could translate into volatility from the British pound. The UK releases employment data on Tuesday, GDP on Wednesday, followed by the Bank of England rate decision on Thursday. The UK employment report will be closely watched by the BoE, which is expected to hold the cash rate at 5.25% for a third straight time. The UK labour market has remained strong despite the BoE's aggressive tightening and high wage growth continues to drive inflation. The unemployment rate is expected to tick higher from 4.2% to 4.3% while wages including bonuses are expected to ease to 7.7%, down from 7.9%. BoE Governor Bailey had a hawkish message for the markets last week, saying that interest rates could remain at current levels for "an extended period" in order to bring inflation back down to the 2% target. Inflation has been falling sharply, but the current clip of 4.9% remains much higher than the target and the BoE doesn't want to encourage talk of a rate hike, which could ease financial conditions and push inflation higher. The markets, however, have priced in rate cuts in mid-2024. Friday's US nonfarm payrolls came in at 199 thousand in November, above the market consensus of 180,000 and higher than the October gain of 150,000. Unemployment dropped from 3.9% to 3.7% and average hourly earnings rose to 0.4% m/m, up from 0.2% in October and above the market consensus of 0.3%. The strong data points to a resilient labour market despite signs that the economy is cooling down, and has reduced fears of recession. The markets are still expecting four or five rate cuts in 2024, pointing to a deep disconnect with the Fed, which is insisting that hikes remain on the table. The strong nonfarm payroll report is a reminder to the markets that the US labour market remains strong, even if there are clear signs that the economy is cooling down. Tuesday's inflation report will be closely watched, as a stronger-than-expected reading would likely force the markets to temper expectations about rate hikes in 2024. GBP/USD is putting pressure on resistance at 1.2592, followed by 1.2682 1.2484 and 1.2369 are the next support levels
by OANDA
New Zealand dollar climbs ahead of NZ Manufacturing SalesThe Japanese yen has surged on Thursday. In the North American session, USD/JPY is trading at 144.00, down a massive 2.25%. Earlier, the yen dropped as low as 143.79 per dollar, which marked the yen's highest level since August 10. The yen has posted its biggest one-day jump of the year against the dollar on Thursday after Bank of Japan policy makers provided clear hints that the central bank is planning a major shift in monetary policy. Governor Kazuo Ueda said earlier on Thursday that the BoJ would face an "even more challenging" situation at the end of the year and in early 2024 regarding monetary policy guidance and said the BoJ would have to decide which interest rates to target once it ends negative rates. Ueda's hint that negative rates might soon end followed comments from BoJ Deputy Governor Ryozo Himino on Wednesday. Himino discussed the potential consequences if the BoJ were to raise rates into positive territory. The BoJ is generally tight-lipped about its plans, and these comments from senior BoJ officials were unusual. The markets have interpreted the remarks as signals about a potential shift in policy, which has sent the yen soaring on Thursday. The BoJ meets next on December 18-19, and the comments from Ueda and Himino have turned the meeting "live", as the markets will be watching for a change in policy at the meeting. At previous meetings, tweaks in policy have sent the yen sharply higher and even speculation of a move can send the yen soaring, as evident today. The US releases nonfarm payrolls, one of the most important economic releases, on Friday. The ADP employment report isn't considered an accurate indication of job growth but is still closely watched, as it is released just two days prior to the nonfarm payrolls report. ADP didn't show much change in November, dropping to 103,000 compared to a downwardly revised 106,000 in October. However, this was well below the consensus estimate of 130,000. Nonfarm payrolls are expected to rise to 180,000, after an October gain of 150,000. If the nonfarm payrolls report misses the estimate, the US dollar will likely lose ground in Friday's North American session. . USD/JPY has breached support levels at 145.96 and 144.70. The next support level is at 143.69, followed by 142.73 There is resistance at 148.93 and 150.74
by OANDA
USD/CAD eyes Canadian job data, US PMIThe Canadian dollar continues to gain ground against a slumping US dollar. In the European session, USD/CAD is trading at 1.3529, down 0.23%. The Canadian currency is poised to post a third straight winning week against the greenback and soared 2.25% in November. It is a busy Friday, with Canada releasing the employment report, the US publishing the ISM Manufacturing PMI and Fed Chair Powell speaking at an event in Atlanta. Canada's labour market has softened but remains in good shape and has shown expansion for three straight months. The economy is expected to have added 15,000 jobs in November, slightly lower than the 17,500 reading in October. The market consensus for the unemployment rate stands at 5.8%, compared to 5.7% in October. This week's GDP report was another reminder that the economy remains weak. Third-quarter GDP declined by 0.3% q/q, below the revised o.3% gain in Q2 and the first decline since the second quarter of 2021. High interest rates have cooled the economy and exports were down in the third quarter as global demand remains weak. On an annualized basis, GDP slid 1.1% in the third quarter, compared to a revised 1.4% gain in Q2 and shy of the market consensus of 0.2%. The US wraps up the week with the ISM Manufacturing PMI. The manufacturing sector has been in a prolonged slump and the PMI has indicated contraction for twelve consecutive months. The PMI is expected to improve to 47.6 in November, compared to 46.7 in October. A reading below 50 indicates contraction. Investors will be listening closely to Jerome Powell's remarks today, looking for hints about upcoming rate decisions. Powell has stuck to his script of a 'higher for longer' rate policy, but the markets have priced in a rate cut in May at 84%. USD/CAD tested resistance at 1.3564 in the Asian session. Above, there is resistance at 1.3665 1.3494 and 1.3434 are providing support
by OANDA
AUD/USD soars on US inflation, Aussie employment nextThe Australian dollar is unchanged on Wednesday, after massive gains a day earlier. In the European session, AUD/USD is trading at 0.6505. Australian wage growth climbed 1.3% q/q in the third quarter, matching the consensus estimate and above an upwardly revised 0.9% gain in Q2. This was the highest gain since records started in 1997, but the spike was largely due to an increase in minimum wage and a pay rise for elderly care workers. The unusual confluence of factors behind the strong wage growth print meant that it had little effect on market pricing of a rate hike. The markets have priced in a pause above 90% at the Reserve Bank of Australia's next meeting on December 5th. The RBA raised rates earlier this month after four straight pauses but the hike was considered dovish by the markets and the Australian dollar took a tumble following the decision. Australia releases employment data on Thursday, with the labour market continuing to show resilience. The economy is expected to have added 20,000 jobs in October, compared to 6,700 in September. The RBA will be keeping a close eye on consumer inflation expectations, which is expected to fall in October from 4.8% to 4.1%. The US inflation report was only a bit lower than expected, but the US dollar was pummelled on Tuesday with sharp losses against the major currencies. The Australian dollar soared, gaining 2% against the greenback. Monthly, headline inflation was unchanged in October for the first time in 15 months, with lower gasoline prices helping to push inflation lower. On an annual basis, headline inflation fell from 3.7% to 3.2%, below the market consensus of 3.3%. Core inflation inched lower to 4.0%, down from the September reading of 4.1% which was also the market consensus. AUD/USD is putting pressure on resistance at 0.6526. Above, there is resistance at 0.6592 0.6476 and 0.6408 are providing support
by OANDA
GBP/USD calm ahead of UK job reportThe British pound has edged higher on Monday. In the European session, GBP/USD is trading at 122.48, up 0.18%. The pound is coming off a nasty week, in which it declined 1.2%. The UK labour market has been resilient despite the Bank of England's aggressive tightening but is showing some cracks. We'll get a look at key employment numbers on Wednesday. Job growth is expected to fall by 80,000 in the three months to September, after a massive loss of 207,000 in the previous release. Average earnings including bonuses are expected to slow to 7.4% in the three months to August, down from 8.1%. The BoE will be keeping a close look at wage growth, which is a significant driver of inflation. The UK releases the inflation report on Wednesday, with the markets expecting CPI to have fallen sharply in October from 6.7% to 4.8%. If inflation falls below 5%, it would mark a milestone in the government's tough battle with inflation, although the 2% target remains far, far away. Core CPI, which excludes food and energy, is expected to show a modest drop to 5.8%, down from 6.1% in September. The BoE is projecting that inflation will fall back to the 2% target at the end of 2025, six months later than the previous forecast. Governor Bailey has been stressing that inflation remains too high, but the BoE nevertheless voted to hold rates at this month's meeting after 14 consecutive hikes. Another pause at the December meeting would be the central bank's preferred plan of action, but that will depend on the data. There is resistance at 1.2287 and 1.2344 1.2183 and 1.2091 and are providing support
by OANDA
USD/CAD steady ahead of Canada, US job reportsThe Canadian dollar is showing little movement on Friday. In the European session, USD/CAD is trading at 1.3740, up 0.03%. The week wraps up with US and Canadian employment reports, which could mean volatility from the Canadian dollar during the North American session. The US releases nonfarm payrolls, which had a massive September and crushed expectations with a gain of 336,000. The markets are projecting a modest gain for October, with a market consensus of 170,000. The ADP Employment Change report, which isn’t considered a reliable gauge for nonfarm payrolls but is still closely watched, posted a weak gain of 113,000 in October, well below the market consensus of 150,000 and following the September reading of 89,000. Will nonfarm payrolls follow suit or will we see another hot release? The US dollar has declined against the majors since the Federal Reserve's decision to maintain interest rates for a second straight time. Fed Chair Powell tried to sound hawkish and reiterated that rate hikes remain on the table, but the markets are in a dovish mood and believe that rates may have peaked. If the nonfarm employment release follows ADP and misses expectations, it would likely mean the end of the current tightening cycle and I would expect the US dollar to decline after the release. Conversely, a strong non-farm payrolls report would support the Fed's stance that rate hikes remain on the table and would likely translate into strong gains for the US dollar following the release. The Fed will also be keeping an eye on wage growth, a driver of inflation. Wages rose 0.2% m/m in September and the market estimate for October stands at 0.3%. On an annualized basis, wage growth is expected to ease to 4.0% in October, down from 4.2% in September. Canada's employment is projected to ease to 22,500 in October, compared to 63,800 in September, which marked an eight-month high. The labour market has remained strong despite the Bank of Canada's aggressive tightening, and a weak employment reading would boost the case for another pause from the BoC and could weigh on the Canadian dollar. 1.3730 is a weak support level. Below, there is support at 1.3660 There is resistance at 1.3805 and 1.3950
by OANDA
EUR/USD extends losses, Fed meeting loomsThe euro is in negative territory on Wednesday after posting a losing session a day earlier. In the North American session, EUR/USD is trading at 1.0532, down 0.40%. The Federal Reserve makes its interest rate announcement later today and the markets have fully priced in rate pause, which would keep the benchmark rate at 5.25%-5.50%. Although the decision is practically a given, investors will be looking for signals as to what the Fed plans to do next. Fed Chair Powell has been hawkish about inflation and I wouldn't be surprised if he reiterated the same message at today's meeting. On the employment front, JOLTS Job Openings rose to 9.55 million in September, up from a revised 9.49 million in August and above the market consensus of 9.25 million. This was the highest level in four months, another sign that the labour market remains strong. The US releases nonfarm payrolls on Friday, with the banner gain of 336,000 last month still fresh in investors' minds. The market consensus for September stands at 180,000. Germany's economy has sputtered, and the once proud locomotive of European growth is looking more like the sick man of Europe. The manufacturing sector has been exceptionally weak and has posted three successive readings below the 40 level. A reading below 50 points to contraction, while above 50 signals expansion. Germany will release the Manufacturing PMI on Thursday. The market consensus for October stands at 40.7, which would be a slight improvement from the September gain of 39.6. There is resistance at 1.0595 and 1.0664 1.0495 and 1.0426 are providing support
by OANDA
NZ dollar slips on weak Chinese data, jobs data nextThe New Zealand dollar has extended its losses on Tuesday. In the North American session, NZD/USD is trading at 0.5808, down 0.60%. October hasn't been kind to the New Zealand dollar, which has declined by 3%. Last week NZD/USD dropped as low as 0.5772, its lowest level in a year. New Zealand's labour market is expected to cool in the third quarter, as elevated interest rates continue to dampen economic activity. Employment is expected to ease to 0.4% q/q, compared to 1.0% in the second quarter. The current unemployment rate of 3.6%, which was the highest since Q2 of 2021, is expected to rise to 3.9% in the third quarter. China is New Zealand's largest trading partner and the significant slowdown in the Chinese economy is having a dampening effect on the New Zealand economy. On Tuesday, Chinese PMIs softened in October. The Manufacturing PMI slipped from 50.2 to 49.5, missing the market consensus of 50.2. The Non-Manufacturing PMI, which covers services and construction, weakened to 50.6, down from 51.7 in September and shy of the market consensus of 51.8. A reading above 50 indicates expansion and below 50 signals contraction. The data indicates that the world's number two economy is still struggling to recover after removing harsh Covid-19 controls at the start of the year. China has responded with increased stimulus but more needs to be done as global demand for Chinese exports has waned and the property sector remains on shaky ground. Beijing is likely to continue lowering interest rates and increasing government spending in order to stimulate the economy. NZD/USD is testing resistance at 0.5819. The next resistance line is 0.5864 There is support at 0.5765 and 0.5720
by OANDA
AUD/USD edges lower, China data beats expectationsThe Australian dollar started the day higher but has reversed directions. In the North American session, AUD/USD is trading at 0.6357, down 0.13%. The US dollar has steamrolled the Aussie, which hasn't posted a winning week since September and dropped close to a one-year low last week. The Australian dollar has bounced back this week, however, gaining 1.08%. The situation in the Middle East remains perilous, with the risk that the Israel-Hamas war could spread and ignite a regional war. President Joe Biden has arrived in Israel, a move intended as a warning to Iran and others not to enter the conflict. The fighting has not affected risk sentiment, as investors haven't panicked and snapped up greenbacks. Still, the Middle East is a powder keg at present and if the situation worsens, we could see a flight to the US dollar. Australia will release employment numbers on Thursday. Job growth has been solid and posted a strong gain of 64,900 in August. Employment is expected to fall sharply to 20,000 in September. Unemployment has been at low levels and is expected to remain at 3.7% for a third straight month. China is Australia's number one trading partner, which means that Chinese releases can have a significant impact on the Australian economy. China's post-Covid recovery has been much weaker than expected, and deflationary pressures and a property crisis could have negative implications for the global economy. Chinese released key data on Wednesday and all three releases beat expectations. GDP for Q3 rose 4.9% y/y, above the consensus estimate of 4.4% but well shy of second-quarter growth of 6.3%. Retail sales for September climbed 5.5% y/y, up from 4.6% in August and above expectations of 4.9%. Finally, industrial production was unchanged in September at 4.5% y/y, compared to the consensus estimate of 4.3%. China's economy may be in better shape than expected, but the road to recovery is likely to be a bumpy one. AUD/USD is putting pressure on support at 0.6343. Below, there is support at 0.6240 0.6399 and 0.6430 are the next resistance lines
by fisherkj4
USD/CAD - Canadian dollar stops nasty slideThe Canadian dollar has steadied on Thursday. In the North American session, USD/CAD is trading at 1.3728, down 0.12%. The Canadian currency has stabilized after a nasty four-day slide, in which it declined 1.9%. The US dollar continues to look strong against the majors, as "US exceptionalism" continues to make the greenback attractive to investors. The Canadian dollar is also getting squeezed by falling oil prices, as oil is a major export for Canada. Crude oil prices slid around $5 on Wednesday, its biggest daily drop in over a year, and fell further on Thursday before recovering. The rise in bond yields, which have raised fears of a global economic slowdown are weighing on investor sentiment towards oil. On the economic calendar, the Canada Ivey PMI eased slightly in September to 53.1, down from 53.5 in August, but easily beat the market consensus of 50.8. The PMI has indicated expansion in economic activity in eight out of the past nine readings. As well, the job creation component rose from 58.5 to 54.8 in August, marking a six-month high. These are encouraging figures for the Canadian economy, which has run into some headwinds, such as a flatlined GDP in August. Canada's economy contracted in the second quarter, and a repeat in Q3 would indicate a technical recession. The Canadian dollar could show some volatility on Friday, with the US and Canada both releasing employment reports for September. Canada is expected to have added 20,000 jobs in September, which would be half of the gain in August of 39,900. The Bank of Canada will be keeping a close eye on wage growth, which is projected to rise to 5.5% y/y, compared to 5.2% in August. All eyes will be on the US nonfarm payrolls, which is showing signs of cracks, with three straight releases below the 200,000 mark. The August release came in at 187,000 and the consensus estimate for September stands at 170,000. Wage growth is expected to tick up to 0.3%, compared to 0.2% in August.  An unexpected reading in the NFP or wage growth reports could have a significant effect on the US dollar on Friday. USD/CAD faces resistance at 1.3806 and 1.3864 1.3695 and 1.3638 are the next support lines
by fisherkj4
AUD/USD eyes US inflation, Aussie jobs reportThe Australian dollar is lower on Wednesday. In the European session, AUD/USD is trading at 0.6408, down 0.28%. The US releases the August inflation report later today. CPI is projected to increase in August to 3.6% y/y, following a 3.2% gain in July. On a monthly basis, the consensus estimate stands at 0.6%, higher than the 0.2% gain in July. Core CPI is expected to fall from 4.7% to 4.3% and remain unchanged at 0.2% m/m. The Federal Reserve puts more emphasis on core inflation readings which are considered more reliable indicators of underlying inflation. A drop in the core rate would be welcomed by the Fed and would cement expectations for a pause at next week's rate meeting. If however, inflation is stronger than expected, the Fed could respond with additional rate hikes in the coming months and that could mean stronger volatility for the US dollar. The markets have widely priced in a rate pause, with a probability of 93% according to the FedWatch tool. After that, the Fed's rate path is unclear, with the odds of a pause standing at 59%. The US labour market remains resilient, despite some cracks, and economic growth for the fourth quarter is expected to be strong. That could mean higher inflation for longer, which could complicate the Fed's efforts to finish the battle against inflation and bring it back to the 2% target. Thursday should be a busy day for the Aussie, with Australia releasing employment data and the US publishing retail sales numbers. Australia's job growth is expected to rebound with a gain of 23,000 in August, after a decline of 14,600 in July. US retail sales are expected to fall in August by 0.2% m/m, down sharply from 0.7% a month earlier. AUD/USD is testing support at 0.6405. Below, there is support at 0.6330 There is resistance at 0.6453 and 0.6528
by OANDA
British pound loses ground after mixed jobs reportThe British pound is in negative territory on Tuesday. In the European session, GBP/USD is trading at 1.2470, down 0.31%. Will the real UK labour market please stand up? The UK labour market is showing signs of weakening, while at the same time wage growth grew at a record pace, according to today's employment release. The economy shed 207,000 jobs in the three months to July, compared to a 66,000 fall a month earlier and weaker than the consensus estimate of -185,000. This was the sharpest loss of jobs since September 2020. The unemployment rate ticked up to 4.3% up from 4.2% and matching the consensus. The data is a clear sign that the labour market is cooling, but wage growth excluding bonuses rose 7.8%, unchanged from a month earlier and the highest on record. Wages are growing faster than consumer inflation, which rose 6.8% in July. The sharp rise in wage growth will provide support for the hawks who favour pushing rates higher in order to curb inflation. The Bank of England has been non-committal about next week's meeting, although Governor Bailey said last week that the BoE was "much nearer" to ending the current tightening cycle. That may indeed be the case, but the markets have priced in a rate hike at the September 21st meeting at close to 80%. Investor focus will now shift to UK GDP which will be released on Wednesday. After a respectable gain in June of 0.5%, the markets are bracing for a decline of -0.2% in July. A contraction in growth could extend the pound's losses. GBP/USD is testing resistance at 1.2471. Above, there is resistance at 1.2519 There is support at 1.2395 and 1.2322
by OANDA
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GBP/USD punches above 1.25, UK job report nextThe British pound has started the week with strong gains. In the North American session, GBP/USD is trading at 1.2537, up 0.61%. The pound has been on a nasty slide, falling as much as 300 basis points since August 31st. The volatility could continue for the pound on Tuesday, with the release of key employment data. The labour market is showing signs of slowing down and the economy is expected to have shed 185,000 jobs in the three months to July on top of the loss of 66,000 a month earlier. If the consensus is within expectations, it would mark a massive job loss and would support the BoE taking a pause at next week's rate meeting.  At the same time, wage growth remains high, which is driving inflation. Average earnings including bonuses are expected to remain unchanged at 8.2% in the three months to July. The June reading was the highest since July 2021, as employers are in urgent need of workers. The Bank of England has been non-committal about what it will do at next week's meeting, although Governor Bailey said last week that the BoE was "much nearer" to ending the current tightening cycle. Bailey also said that the BoE might have to raise rates further due to persistently high inflation. Inflation has been falling but has been stickier than expected.  Bailey may be trying to calm the markets with the message that rate hikes could end soon, while keeping further increases on the table, given that inflation remains above the Bank's 2% target.  GBP/USD is testing resistance at 1.2519. Above, there is resistance at 1.2592  There is support at 1.2441 and 1.2395
by OANDA
GBP/USD pushes higher as inflation drops to 6.8%The British pound has posted considerable gains on Wednesday. In the North session, GBP/USD is trading at 1.2754, up 0.39%. The UK released the July inflation report today and the readings were a mixed bag. Headline CPI dropped to 6.8% y/y, a sharp drop from the 7.9% gain in June and matching the consensus estimate. The decline was certainly welcome news but the driver of the downswing was a sharp drop in fuel prices. Core CPI, which excludes energy and food, remained unchanged in July at 6.9% and above the estimate of 6.8%. The core rate rose 0.3% m/m in July, up slightly from the July reading of 0.2%, which was also the estimate. There was some good news in the inflation report as headline CPI declined by 0.4% m/m in July, compared to +0.1% in June and very close to the consensus estimate of -0.5%. Still, the fact that core CPI remains elevated and sticky provides support for the hawks at the Bank of England who believe that rates must rise further in order to curb inflation. The inflation report comes on the heels of a soft UK employment report on Tuesday. The data revealed that the tight labour market is finally cooling, which would ordinarily be positive news for the Bank of England. The one glaring exception to the soft numbers was wage growth, which jumped to a record 7.8%, up from 7.5% and above the consensus estimate of 7.3%. The increase in wage growth is indicative of a wage-price spiral which will hamper the BoE's efforts to curb inflation. The US released a robust retail sales report on Tuesday, giving a boost to the US dollar as speculation rises that the Fed may not be done with the current rate-tightening cycle. Headline retail sales rose 0.7% m/m in July, but core retail sales stole the show with a massive 1% gain up from an upwardly revised 0.4% in June. Consumer spending is picking up, which could complicate the Fed's plan to ease up on rates and guide the economy to a soft landing. GBP/USD is testing resistance at 1.2726. The next resistance line is 1.2787  1.2634 and 1.2573 are providing support
Long
by OANDA
GBP/USD shrugs off mixed employment reportThe British pound has edged higher on Tuesday. In the European session, GBP/USD is trading at 1.2697, up 0.08%. Investors were treated to a mixed UK employment report today. The labour market, which has been surprisingly resilient in the face of the Bank of England's tightening, is showing unmistakable signs of cooling. Employment fell by 66,000 in the three months to June, a huge reversal from the 102,000 gain in the previous period. The consensus estimate stood at 75,000. Notably, this was the first decline in job growth since August 2022. The unemployment rate rose from 4.0% to 4.2%, above the estimate of 4.0%, and unemployment claims rose to 29,000, up from 16,200 and above the estimate of -7,300. The one exception to the soft jobs report, but a critical one, was wage growth. Average earnings excluding bonuses rose 7.8% y/y in the three months to June, up from 7.5% and above the estimate of 7.3%. This was the highest level since records began in 2001. Average earnings including bonuses jumped 8.2%, compared to an upwardly revised 7.2% previously and above the estimate of 7.3%. The jump in wage growth will be unwelcome news for the Bank of England, as it indicates that the dreaded wage-price spiral continues to feed inflation. Higher wages are a key driver of inflation, and the BoE has warned that if wage growth doesn't ease, it will be forced to raise rates even higher. This could mean that the weak UK economy will tip into a recession, but the BoE considers that the lesser evil compared to high inflation. The BoE meets on September 21st and I do not envy Governor Bailey, who may have to cause more financial pain and raise rates. The UK releases the July inflation report on Wednesday, with CPI expected to fall to 6.7%, down from 7.9%. That would be a significant decline but it would still leave inflation more than triple the BoE's target of 2%. The BoE and investors will be glued to the inflation report and I expect the British pound to have a busier day. GBP/USD is testing resistance at 1.2726. The next resistance line is 1.2787  1.2634 and 1.2573 are providing support
Long
by OANDA
GBP/USD steady ahead of jobs dataThe British pound is quiet at the start of the week. In the European session, GBP/USD is trading at 1.2701, up 0.05%. The UK releases key employment numbers on Tuesday and the data is expected to show that the UK labour market remains tight. The economy is expected to have created 50,000 jobs in the three months to June. That number is down from 125,000 previously, but unemployment claims are expected to drop by 7,300, down from a gain of 25,700 previously. Most importantly, wage growth including bonuses is expected to jump to 7.3% in the three months to May, compared to 6.9% in the previous three months. A jump in wage growth will not be welcome news for the Bank of England, which has had limited success in its battle to rein in inflation. Wage growth has been elevated due to high inflation and the tight labour market and an acceleration in wages will support a rate hike at the September meeting. The BoE has raised rates to 5.25%, but inflation has fallen more slowly than expected and is currently at 7.9%, the worst in the G-7. Over in the US, the markets are widely expecting the Fed to pause at the September 20th meeting. That will allow the markets to focus on key releases and try to determine if the economy is too strong, which could mean further rate hikes late in the year. Retail sales, which will be released on Tuesday, will provide a snapshot of whether consumers are still spending despite inflation and rising interest rates. Both the headline and core rates are expected to rise by 0.4% in July after a 0.2% gain in June. GBP/USD is putting pressure on resistance at 1.2726. The next resistance line is 1.2787  1.2634 and 1.2573 are providing support
by OANDA
USD/JPY rises as BoJ takes note of inflationThe Japanese yen has started the week in negative territory. In the European session, USD/JPY is trading at 142.36, up 0.42%. Inflation continues to be a key issue for the Bank of Japan, although it is much lower than in other major economies, at around 3%. Still, inflation is above the Bank's 2% target and this continues to raise speculation that the BoJ will have to tighten policy sooner or later. The BoJ has pushed back against talk that it will tighten, and when the central bank recently made its yield curve control (YCC) more flexible, Governor Ueda was careful to stress that the step did not represent a move towards normalization. Against this backdrop, the BoJ released its Summary of Opinions earlier today. The members reiterated the necessity to keep an ultra-easy monetary policy in place, but some members noted that inflation and wages could continue to increase. One opinion went as far as to state that 2% inflation "in a sustainable and stable manner seems to have clearly come in sight" and urged the BoJ to make YCC more flexible. This BoJ internal conversation could be a signal that policy makers are slowly acknowledging that inflation, which has been above the 2% target for months, may be sustainable. That would mark a sea change in the BoJ's thinking and could have major ramifications on the exchange rate. The US employment report for July was a mix. Nonfarm payrolls were soft at 187,000, despite a banner ADP release which fuelled expectations of a breakout nonfarm payrolls release. Job growth is slowing, but the unemployment rate ticked lower to 3.5% down from 3.6%, and wage growth stayed steady at 4.4%. After the Fed's July rate hike, what's next? The money markets are expecting the Fed to take a pause at the September meeting, with a probability of 84%, according to the FedWatch. It's entirely possible that the Fed is done with tightening, but that will depend to a large extent on the data, particularly inflation and employment reports. USD/JPY is testing resistance at 142.12. Above, there is resistance at 143.55 141.47 and 140.36 are providing support
by OANDA
USD/CAD shrugs after soft nonfarm payrollsThe Canadian dollar is showing limited movement on Friday. In the North American session, USD/CAD is trading at 1.3360, up 0.06%. Canadian and US job numbers were soft today, but the Canadian dollar's reaction has been muted. After a stellar job report in June, the July numbers were dreadful. Canada's economy shed 6,400 jobs in July, compared to a 59, 900 gain in June. Full-time employment added a negligible 1,700 jobs, following a massive 109,600 in June. The unemployment rate ticked up to 5.5%, up from 5.4%. Perhaps the most interesting data was wage growth, which jumped 5% y/y in June, climbing from 3.9% in May. The rise is indicative of a tight labour market and will complicate the Bank of Canada's fight to bring inflation down to the 2% target. It was deja vous all over again, as nonfarm payrolls failed to follow the ADP employment report with a massive gain. In June, a huge ADP reading fuelled speculation that nonfarm payrolls would also surge, and the same happened this week. Both times, nonfarm payrolls headed lower, a reminder that ADP is not a reliable precursor to the nonfarm payrolls report. July nonfarm payrolls dipped to 187,000, very close to June reading of 185,000 (downwardly revised from 209,000). This marks the lowest level since December 2020. The unemployment rate ticked lower to 3.5%, down from 3.6%. Wage growth stayed steady at 4.4%, above the consensus estimate of 4.2%. What's interesting and perhaps frustrating for the Fed, is that the jobs report is sending contradictory signals about the strength of the labour market. Job growth is falling, but the unemployment rate has dropped and wage growth remains strong. With different metrics in the jobs report telling a different story, it will be difficult for the Fed to rely on this employment report as it determines its path for future rate decisions. There is resistance at 1.3324 and 1.3394 1.3223 and 1.3182 are providing support
by OANDA
AUD/USD extends slide, Aussie employment report nextThe Australian dollar is down sharply on Wednesday. In the North American session, AUD/USD is trading at 0.6774, down 0.55%. For anyone who enjoys strong volatility, look no further than the Australian dollar. Last week, AUD/USD climbed 2.18%, as the US dollar sagged badly after the June inflation report surprised on the downside. The Australian dollar hasn't been able to consolidate and has pared about half of those gains this week. Australia releases the June employment report on Thursday. After a banner reading in May, when the economy added 75,900 jobs, the consensus stands at a modest 15,000. The unemployment rate is expected to remain at 3.6%. The Reserve Bank of Australia would prefer weaker job numbers as it tries to beat down inflation. The labour market has been surprisingly resilient in the face of the central bank's aggressive tightening, complicating the battle to curb inflation. The RBA has said that its decisions will be data-dependent, and inflation and employment numbers are critical to the RBA's rate path in the coming months. The central bank left rates alone at the meeting earlier this month and would like to extend the pause at the August 1st meeting. That, however, will require evidence that the economy is cooling and Thursday's employment numbers will be a key factor in the RBA's rate decision. The next meeting is on August 1st, with the money markets pricing a rate hike at just 25%, according to the ASX RBA rate tracker. The RBA has abandoned forward guidance in favor of making rate decisions based on economic data, which could make next week's employment report a game-changer as to whether the RBA pauses or hikes at the next meeting. AUD/USD is testing support at 0.6786. Below, there is support at 0.6676 0.6878 and 0.6947 are the next resistance lines
by OANDA
Canadian dollar on a roll ahead of US and Canada job reportsThe Canadian dollar is drifting in the European session, trading at 1.3378. It has been a good week for the Canadian currency, which is up about 1% against its US cousin. We can expect some significant movement from USD/CAD in the North American session, as both Canada and the US release the June employment reports. The US labour market has been surprisingly resilient in the wake of relentless tightening by the Fed. After 500 basis points of hikes, the labour market remains strong and has been a driver of inflation, interfering with the Fed's efforts to curb inflation. The ADP employment report usually doesn't get much attention, as it is not considered a reliable precursor to nonfarm payrolls, which follows a day or two after the ADP release. The June ADP reading was an exception, as the massive upturn couldn't be ignored. ADP showed a gain of some 497,000 new jobs, crushing the consensus estimate of 267,000 and the May reading of 228,000. The nonfarm payrolls report is expected to ease to 225,000 in June, down from 339,000 in May, but investors are nervous that nonfarm payrolls could follow the ADP release and head higher. If nonfarm payrolls defies the consensus estimate and climbs higher, the US dollar should respond with gains. The Fed, which is very much hoping that the labour market weakens, would be forced to consider more tightening than it had anticipated. The money markets are widely expecting a rate hike on July 27th but have priced in a September pause at 67%, according to the CME FedWatch tool. If nonfarm payrolls jump higher, all bets are off and I would expect the probability of a September pause to fall. Canada releases the June report later on Friday, which is usually overshadowed by US nonfarm payrolls. As in the US, the Canadian labour market has been strong - the economy added jobs for nine consecutive months until the May report. Canada is expected to add 20,000 new jobs in June, while the unemployment rate is projected to inch higher to 5.3% in June, up from 5.2% in May. USD/CAD is testing resistance at 1.3318. Next, there is resistance at 1.3386 1.3217 and 1.3149 are providing support
by OANDA