This week was marked by the NFP (Non-Farm Payrolls) on Friday and having said that, it means the whole week market was ranging in order to position for the release. The jobs data in the United States is very important for markets as part of the Fed’s mandate. Moving rates are based on job creation and this is why traders always hesitate in taking a decisive position before the actual numbers are released. It turned out that it was a non-event in the sense that despite the fact that the data was coming way below expectations, market didn’t move. The initial reaction was clearly selling the USD but until the end of the day the whole move was retraced.
To give you an example, the EURUSD pair moved around seventy pips higher to 1.1480 only to end the day at 1.1400 level. And if you consider the fact that the week started with EURUSD at 1.1440 area, we might say the week was a ranging one. Speaking of the EURUSD pair, this week we did see the pair traveling all the way to above 1.16. What financial analysts think: being at the start of May, was trading EURUSD call options with end of month expiration date as despite the move being corrective, it still needs to travel to around 1.17 level.
RBA Cut Rates
RBA (Reserve Bank of Australia) cut the Cash Rate this week to 1.75% citing inflation, or lack of it, as the main concern and not necessarily Chinese demand. The move did not affect the AUDUSD pair though, that day, but the end of the week saw the pair sliding to below 0.7400 in an aggressive fashion. From analyst’s point of view it is going to move even lower together with other commodity pairs and he is targeting a move below 0.70 again.
Therefore financial traders traded put options on the pair with one week expiration date and while doing that he also traded put options on the NZDUSD with one week and end of month expiration. The thing is that the kiwi pair needs to have a simple correction from a technical point of view and that simple correction should see the 0.6300 level coming pretty fast. Hence, looking for the downside is only normal.
Important Week for GBP
Important week ahead of us for the GBP as Bank of England is having its interest rate decision meeting next Thursday. While no one is looking for BOE to move on rates, it is going to be interested what the Inflation Letter is going to show. One thing is for sure: we will have extreme volatility on the GBP pairs and we should adjust the expiration dates on any trade to be taken. Trding analysts are bearish the GBPUSD pair as they see a triangle forming on a daily chart but funny enough it should not fall that much. However, end of month expiration date should be ok for any put option and this is what they intend to focus on this week.
Fed Interest Rate Hike Delayed
Following last Friday’s jobs data, many financial powerhouses delayed the expectation for the Fed to hike rates in the June meeting and now the probability is that we will see another hike probably in fall. But if the poor data continues to come, then the ultra-dovish Yellen will not allow any rate hike so chances are the hike not to come at all this year. We will have more clues by the time the Fed minutes are going to be released. This will happen one and a half weeks from now as they will reveal what Fed members discussed last time they met. If we put together the Retail Sales to be released next week we might have more clues regarding the interest rate hike subject.
From our point of view Fed missed the window for hiking again at the start of the year, basically in March, and analysts think that moving forward is going to be difficult to do it. Next week his focus will be on buying put options for GBPUSD, AUDUSD, NZDUSD, while looking for call options on Euro crosses like EURJPY and EURGBP. One thing is for sure: it is going to be an interesting week and the expiration dates he will use will be either one week or end of month. As usual.
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