Low US jobs number might not dissuade Fed from rate rise
Over the course of May, US Federal Reserve officials have made it just about as clear as they possibly can that they want to raise interest rates this Summer and that it will likely take some fairly horrible economic data to dissuade them from that course. Even a weak jobs number may make little difference.
The implications for USD are for it to strengthen further – at least in the short- to medium-term.
In the meantime, the April Non-Farm Payroll number came in at 160,000 well below some of the previous numbers when they routinely ran above 200,000. This Friday’s number, which will be for May, is expected to show around 160,000, again. However, the number could turn out to be weaker due to a 44-day strike by 35,000 workers with US telecoms group, Verizon, which only ended recently.
Because of this distortion, a potentially weak number might be ignored and it follows therefore that June NFP, providing the Verizon deal sticks, could see a jump. The factor that could garner more attention from the Fed are hourly wages, currently rising at a rate of 2.5%, and unless that number drops precipitously, an unlikely event, the May figures will probably do little to swerve the Fed from its course.
For some time now the Fed has wanted to normalise its monetary policy and would probably like to raise rates again towards the end of the Summer – the economy permitting. Much depends on whether the US economy can stomach more expensive credit and if rates can be raised without causing turmoil in international markets. For instance, many emerging market countries and lower rated corporate credits could struggle even with slightly higher interest rates.
The Fed’s next FOMC meeting is on June 14-15 and the one after that is on July 26-27 and one of those meetings is very likely to see a rate rise. However, if this hike is seen as the end of the tightening cycle, then there’s a high chance of the USD weakening soon after. High chances of another rate rise late this year / early next year should give USD some support.
Next week, in the run up to Friday’s Non-Farm Payroll numbers sees the release of CB consumer confidence on Tuesday (consumer confidence has been relatively strong recently), Wednesday it’s ISM manufacturing PMI and on Thursday it’s the ADP Non-farm employment change. Also on that day FOMC member Powell is due to speak and he may use the occasion to reiterate Fed intentions over interest rates.
TECHNICAL ANALYSIS: EUR/USD – should continue to crumble
With a US interest rate hike looking ever more likely for this Summer, EUR/USD continues to grind its way lower with various important support levels having been swept away. Unless, some seriously weak data emerges over the coming weeks, EUR/USD looks set for further losses.
Meanwhile, the pair are pushing down hard on the lower Bollinger band, which is often a reversal signal, meaning a rebound or consolidation isn’t far away. Though that’s certainly possible, the daily Slow stochastics are throwing off mixed signals, the RSI is still hovering above oversold territory, the MACD does have a sell signal and overall the trend is still pointing down.
Support can be seen at 1.1014, 1.0999 and 1.0866. Resistance is around 1.1140,1.1202 and 1.1311.
By Justin Pugsley, Markets Analyst, MahiFX