Markets to act like a zoombie ahead of the US NFP data
Euro could pop well above the 1.20 mark against the dollar
Dollar bulls are keeping their hopes up especially after a stellar revision of the Q2 US GDP
European market and US futures are trading higher ahead of the most watch economic data on the face of the earth. The markets tends to act like a zombie before the US NFP data is released. Today is not going to be any different either, unless of course, we see some sort of surprise in terms of geopolitical tensions.
What traders have priced in very much in the market is that the Fed is going to struggle with respect to any further rate hike for this year. However, the dollar bulls are keeping their hopes up especially after a stellar revision of the Q2 US GDP. It came well ahead of the expectations and ignited the rally in the dollar index. But the question was for how long this rally would last and if it has any legs to stand on?
One of the forward looking indicator is your US pending home sales data and the number released on Thursday wasn’t encouraging at all. It broke the dollar bulls back. What it tells you that the affordability ratio is falling due to the hike in the interest rate and wages are stagnant. In other words, we are highly likely to consolidate. We will not be surprised if the index does not start to roll over. The personal income data in the US does show that the number has improved (0.4%) relative to the last month however, consumers are not spending. The personal spending number (0.3%) was shy off expectations (0.4%).
The Fed is confident about the labour market more than their inflation target of 2%. However, the recent catastrophe caused by Hurricane Harvey is going to create more headwinds for the labour market. The upcoming unemployment claims number is going to rise. If we look at a similar situation; Hurricane Katrina, it becomes evidently clear the unemployment claims tends to rise in the following weeks.
What about gold and for Euro
The ECB is concerned about the euro strength and this took some of the steam out of the euro-dollar pair. However, the US NFP number has ability to provide a massive tailwind for this pair. The euro-dollar pair could start its net mile stone journey towards the 1.25 is the number disappoints investors tomorrow. Even if the US NFP number matches the forecast it would still be translated as a dovish signal for the Fed and negative influence for the dollar. Both the US payroll number and wage growth have to pull their weight. In other words, the bar is set high for the dollar index to beat expectation.
August has been a phenomenal month for gold price. We do think that good days are still ahead for the shining yellow metal. Why? We still have the issues of US debt ceiling, nothing on the tax reform, no announcement on the stimulus package and the geopolitical tensions are becoming worse. Basically, there are several pillars which could potentially continue to support gold price. We do think that it is highly likely that if we stay above the $1300 , gold price could easily touch $1370 this month.