US jobs report and Fed minutes to guide markets

The US dollar is lower against most majors amid hawkish rhetoric from central banks and improving economic conditions around the globe. The U.S. Federal Reserve has raised interest rates twice in 2017 and continues to hint at more tightening measures before the end of the year. American fundamentals have been mixed and the rising concerns about the Trump administration’s ability to get to pass pro-growth policies are weighing on the dollar despite the efforts of the Central Bank.

The Fourth of July holiday in the United States will make an already packed economic calendar even more compressed. The notes from the Federal Open Market Committee (FOMC) meeting in June will be released on Wednesday, July 5 at 2:00 pm EDT. Employment data out of the US will start pouring in on Thursday with the release of the ADP private payrolls report at 8:15 am EDT and the weekly Unemployment claims. The main event will be the release of the U.S. non farm payrolls (NFP) report on Friday, July 7 at 8:30 am EDT with investors looking for signs of inflation in the wages component to reaffirm the Fed’s hawkish view.

The EUR/USD gained 1.859 percent in the last five trading days. The single currency is higher against the USD as central bank rhetoric from the Bank of Canada (BoC), the Bank of England (BoE) and the European Central Bank (ECB) came in too close to each other and are signalling an end to low rates. The Fed has done its part with two rate hikes this year and a balance sheet reduction plan expected to kick off in the fourth quarter, but political risk in the US has impaired the dollar with uncertainty on major policies being introduced as promised after the presidential elections.

The European Central Bank (ECB) Forum in Portugal served as the perfect stage for the central bank to join the Bank of Canada and the Bank of England in their hawkish views as it appears the Fed will not be alone in tightening monetary policy in the coming months.

Employment data out of the US next week will be pivotal for the direction of the USD if there is significant improvement in wage growth. The US has posted solid job gains, but the quality of those positions is being questioned, in order to make a dent in the market perception the inflation signals have to be strong to further validate the current rate hike path of the central bank.

The USD/CAD lost 2.213 in the last five days. The currency pair is trading at 1.2966 as economic indicators and hawkish rhetoric has boosted the loonie while the political uncertainty in the US has impacted the US dollar. The pair has decisively broken through the 1.30 price level and the loonie rally will keep going as the market heads into next week’s US employment data on a short trading week due to the Fourth of July holiday.

The Fed will release the notes from its latest Federal Open Market Committee (FOMC). The US central bank hiked rates by 25 basis points as expected but with inflation remaining low and some obvious dissenters like Minnesota’s Fed Kashkari it will be insightful to learn what form the debate took shape as it helps forecasters model the upcoming decisions from the central bank regarding rates and the reduction of the balance sheet which seems to be a more agreeable subject amongst policy makers.

Canadian economic output rose in April by 0.2 percent as expected. On a yearly basis the economy is growing at a 3.3 percent rate, the biggest gain since 2014. Services are leading the way with an improvement in commodities and a slowdown in manufacturing the major highlights. Next week CAD traders will be tracking the release of the Canadian Trade Balance on Thursday, July 6 at 8:30 am EDT and the employment report on Friday, July 7 at 8:30 am EDT for guidance on the path of the loonie.

Oil gained 7.114 on the last week. The price of West Texas Intermediate is trading at $45.11 amid some financial institutions are buying at what they think is the bottom. Citibank is calling for a rebound of crude after two weeks were oil inventories have been subdued. There has not been any evidence of improvement in demand and the tug of war between the Organization of the Petroleum Exporting Countries (OPEC) and the US shale producers will continue to keep the black stuff trading in a range as data supports one side over the other.

Goldman Sachs was less bullish and issued a note reducing the oil prices forecast for next quarter after Nigeria and Libya productions ended their disruptions and continue to be exempt from the OPEC oil cut agreement. GS is pointing to a $47.50 price per barrel of WTI, which was a significant downgrade from the previous $55 price level.

Crude has advanced 6.2 percent in the last week as the downward pressure due to the oversupply concerns has eased. OPEC members will meet with other producers in Russia to discuss the next steps to stabilize energy prices after they have already agreed to extend the crude production cut until March of 2018. Maintenance and disruptions due to a storm in the Gulf of Mexico reduced the level of US inventories and gave oil a chance to record its best rally of the year and yet prices will be net negative in June. The start of the driving season in the US has not been too favourable for crude addressing the biggest issue yet to be tackled by producers, the apparent lack of demand worldwide.

Market events to watch this week:

Sunday, July 2
9:45 pm CNY Caixin Manufacturing PMI
Monday, July 3
4:30 am GBP Manufacturing PMI
10:00 am USD ISM Manufacturing PMI
9:30 pm AUD Retail Sales m/m
Tuesday, July 4
12:30 am AUD RBA Rate Statement
4:30 am GBP Construction PMI
Tentative GBP Inflation Report Hearings
Wednesday, July 5
4:30 am GBP Services PMI
2:00 pm USD FOMC Meeting Minutes
9:30 pm AUD Trade Balance
Thursday, July 6
8:15 am USD ADP Non-Farm Employment Change
8:30 am CAD Trade Balance
8:30 am USD Unemployment Claims
10:00 am USD ISM Non-Manufacturing PMI
11:30 am USD Crude Oil Inventories
Friday, July 7
4:30 am GBP Manufacturing Production m/m
8:30 am CAD Employment Change
8:30 am CAD Unemployment Rate
8:30 am USD Average Hourly Earnings m/m
8:30 am USD Non-Farm Employment Change

*All times EDT
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar