It was all about the Fed this week as market waited for Wednesday’s interest rate decision to be released and the FOMC (Federal Open Market Committee) statement took everyone by surprise in the sense that the phrase with concerns regarding global growth was removed. That being said, the US dollar has been bought aggressively but the one pair that traveled the most was the EURUSD. This may come as a consequence of still bearish implications after the Draghi move from the previous week.
Coming back to the Fed, the market took it as a sign that they will hike the rates at the next meeting and as a consequence the USD moved higher. However, the statement mentioned that any potential hike is still data dependent and if data is disappointing in the period to come (there are two Non-Farm Payrolls) releases until the next Fed meeting it is very much possible to see a delay.
Anyways, it is still a long way until December and in trading anything can happen. This week I was focused more on the crosses in the sense that whenever a US dollar driven event is supposed to be released I have the tendency to avoid trading the US dollar pairs and focus on crosses.
US GDP Missed By a Thread
The US GDP (Gross Domestic Product – total values of goods and services an economy is producing) was released on Thursday and it came at 1.5% on expectations of 1.6% so we may say it was somehow in line with expectations. But this time markets were not impressed in the sense that USDJPY reacted and traded with a bullish tone all Thursday, not to mention that the EURUSD pair, after the initial move lower on the GDP print, started to catch a bid and the highs of the day were threatened.
The US economy is still growing at a healthy pace despite the recent weak third quarter if you’re comparing it with the second one and it is no wonder the Federal Reserve in the United States is contemplating the idea of hiking the rates. If you compare with the rate growth in other parts of the world, in modern economies, then the lack of growth is obvious and this is one of the reasons why central banks on a worldwide basis are keeping the monetary policies in accommodative stance.
Initial Jobless Claims Continued To Improve
Thursday saw the release of the Initial Jobless Claims in the United States and the outcome was beating the expectations again. It is a strong trend for the claims and this puts pressure on the NFP in the periods to come to be bullish for the US dollar as well. When it comes to the jobless claims they are released on a weekly basis and show the number of people that are applying for the first time for unemployment benefits. The bigger the number, the bad it is for the US dollar and the US economy, while the opposite is also true.
The current downtrend is really powerful and shows the claims at levels not seen since 1978 in the United States. One reason will be that these data is supported by the fact that the labor participation rate is really at lowest levels every and if there are fewer people joining the workforce then the claims are moving south as well.
Regardless of the reason, the unemployment rate is well below Fed’s target when they started the quantitative easing program and moving strong towards the full employment. I guess we can say that the Fed enough for hiking the rates, even though, again, any hike is/should be viewed as not the beginning of a tightening cycle, but only a move from an ultra-low monetary policy to an easy one.
CPI Still Lagging both In Europe and US
CPI (Consumer Price Index) is still missing expectations all over the modern economies as both Eurozone and US are fighting lower levels. In Europe some months showed negative inflation or deflation, depending how you want to put it. This puts pressure on central banks to keep the monetary policies easy and accommodative until a pick-up in the inflation trend is spotted. Speaking of the CPI, keep in mind that the Core CPI (number without food, energy and transportation) is the favored number the central banks take into account and this is all that matters, not necessarily the general headline.
When it comes to the Core number, values are not that bad as the US is around 0.9% on an annualized basis and this doesn’t look like much of a problem. All in all, it is going to be an interesting end of year trading with the NFP numbers in November to come as early as next week. Then we will know what the Fed is going to do in December.
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