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Will The Fed Tolerate A Stronger USD For Longer? – Credit Agricole.

Given that US financial conditions have tightened of late, investors will also want to know if the Fed will tolerate further tightening (eg, USD appreciation). The Fed should deliver a 25bp rate hike but may keep its economic and policy outlook little changed, opting to wait for more economic data and details on the upcoming Trump stimulus. At the same time, Yellen may signal willingness to tolerate further tightening in US financial conditions in view of the latest rebound in US inflation expectations and given the resilience of risk sentiment at home and abroad.

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Given the latest USD underperformance, the bigger surprise for the FX markets could be indications that the Fed would tolerate higher UST yields and a stronger USD for longer, as well as any potential revisions to the 2018 dot-plot to reflect the recent drop in the unemployment rate below the Fed’s NAIRU.

This could help USD regain some lost ground vs commodity and risk-correlated G10 currencies if further tightening in global conditions starts eroding market risk sentiment. AUD could be vulnerable to potential disappointments from the upcoming data out of Australia and China. We keep open our short AUD/USD trade.*

The BoE, the SNB and the Norges Bank will also meet next week but should keep policy unchanged. That said, the MPC could see the latest disappointing UK data as confirmation of its cautious macro outlook and reiterate it will keep policy very accommodative in the face of surging cost–push inflation. This could keep the headwinds in place for GBP against USD. EUR/GBP could start consolidating after the recent sell-off following the Italian referendum and December ECB meeting.

To Hike Or Not To Hike? That Is The Question.

The Fed have been a little more hawkish of late, and with good reason in my opinion. The numbers coming out of the US have been good enough for a rate hike this year.

August NFP numbers were released on Friday which came in at a 151k against an expected 180k. So with NFP numbers below market expectations, will the Fed hike rates in September? Lets have a look at what some of the major players have to say.

Not Strong Enough For A September Hike – Danske

Overall, the August jobs report was not strong enough for the Fed to hike at the next meeting in September, especially not after the very weak ISM report released yesterday, with the index falling below 50, indicating a contraction in the US manufacturing sector.

Although our view is that the Fed will stay on hold until H1 17, we cannot rule out a hike later this year, most likely in December following the presidential election, if we see some recovery in the US activity data and continued decent jobs growth in coming months.

One main reason we moved our expectation for the next Fed hike to next year was due to Brexit but, so far, the economic impact of Brexit has been very limited in the rest of Europe and the US. Still, as we have argued for some time, most voting FOMC members have a dovish-to-neutral stance on monetary policy and would rather postpone the second hike than hike prematurely, although some FOMC members (especially non-voters) appear to be eager to get going with the hiking cycle. The Fed can afford to stay patient, as GDP growth has been just around 1% for three consecutive quarters, PCE core inflation is still below 2%, inflation expectations (both survey based and market based) have fallen and wage inflation is still subdued.

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Good Enough For A September Hike – BNPP

In August, 151,000 jobs were added, below consensus expectations for 180,000. The three-month average gain (232,000) far exceeds the range of estimates the FOMC sees as sufficient to keep the unemployment rate stable.

There is nothing in this report that flashes a warning signal about where the economy is going; very different from the May report that caused a scare. We see this as a solid employment report that is good enough for the FOMC to deliver a rate hike in September.

For the month of August, hiring in the goods sector was weak while the services sector normalized a bit after an outsized gain in July.

The tendency for August payrolls to disappoint is no secret. Downside surprises are usually followed by large upward revisions in the Bureau of Labor Statistics’ (BLS) second and third estimates (an average revision of 62,000 in the past five years).

Feeling Weak: Keeping Our Fed Call For December Hike – BofA Merrill

The August employment report was weak, leaving us feeling comfortable with our call for the Fed to stay on hold in September and hike again in December. 

Nonfarm payrolls expanded by 151,000. July was revised up to 275,000 from 255,000 but June was revised lower to 271,000 from 292,000, leaving net revisions at only -1,000. Average hourly earnings only rose by 0.1% mom, causing the year-on-year rate to slow to 2.4% from 2.7%. Weekly hours also contracted to 34.3, down from 34.4 in the prior month (revised from 34.5 initially). The unemployment rate remained unchanged at 4.9%, as did the participation rate at 62.8% and the underemployment rate at 9.7%.

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Labor Markets Squeak Past Threshold For September Hike – Barclays

Nonfarm payroll growth came in at a solid 151k in August, below our forecast (200k) and that of consensus expectations (180k). The establishment survey softened a bit across the board, but continues to show solid underlying strength. The three month average gain in payrolls is now 232k. Goods sector employment fell 24k, consistent with softening in some survey indicators in recent data. Service sector employers added 150k; these private sector gains were further boosted by 25k in government job gains. The household survey shows an unemployment rate unchanged at 4.9%, as robust household employment was offset by a further rise in labor force participation. Finally, wage growth (0.1% m/m, 2.4% y/y) also softened a touch from last month.

On the whole, this morning’s strong July employment report, despite the slower pace of job gains, indicates that labor market health remains intact and that therefore economic activity remains solid. Furthermore, this print should maintain the confidence of most FOMC members in the outlook. Most members will view this report as consistent with solid economic activity and will believe that that activity will continue to pull inflation upward toward their target.

We maintain our call of a September rate hike.

So there you have it. 2 calls for a September hike, and 2 calls for no hike. The odds of a September hike are currently just over 40% so its very close and could go either way.

If you like this article please share it. Thanks for visiting, have a great day.

Forex Volume Set To Rise. USD JPY To Stabilize – Credit Agricole.

Article Courtesy of Credit Agricole.

The views expressed in this article are the opinion of Credit Agricole FX market analysts. Please feel free to share.

The holiday season is in full swing and for some this may mean that markets will settle down as liquidity dries up in the coming weeks.

Our evidence suggests that Forex volume tends to go up in August, however, data releases and events can trigger renewed spikes of short-end vol across G10. It remains to be seen whether the combined effect of the multitude of idiosyncratic shocks will be sufficient to fuel a broader risk off move. Even so, we have added to our portfolio a long XAU/CHF trade as a risk-off hedge. Another interesting strategy is to identify cheap FX volatility to benefit from accentuated market moves on the back of event risks and thin market liquidity ahead.

Next week’s data calendar is laden with data releases like US non-farm payrolls, and events like the BoE Inflation report and the RBA policy meeting.

The BoE inflation report may struggle to exceed the dovish market expectations ahead of the August inflation report, and that could help GBP consolidate more broadly. We remain long GBP/CHF going into the release. Investors are looking for another solid US payroll and earnings data.

JPY should remain in the spotlight ahead of the announcement of Abe’s fiscal stimulus next week. We expect Japanese stocks to recover some more as a result and that should help USD/JPY stabilize.

Ahead of the RBA, markets see a greater than 50% chance of a rate cut. We also see a non negligible risk of policy action and stick to our tactical AUD/USD short. The FX options markets do not seem to be pricing in a significant scope for spot moves making AUD short-term gamma an interesting buy as well.

That said, we remain bulls on AUD/NZD over the longer-term, and expect the upcoming NZ unemployment and inflation expectations data to fuel rate cut expectations ahead of the August RBNZ meeting, and keep the cross supported. Potential disappointments from Chinese PMI data could keep both antipodean currencies under pressure against USD.

credit agricole

The Binary Options Scammers Are At It Again.

Rob Taylor Forex TraderI have noticed in recent weeks that more unscrupulous Binary Options brokers are once again using my name and company to promote their scams.

This is how it works. They scammers build doorway pages and submit them to Google and optimize them for keyword rich search terms like Rob Taylor Forex, and Rob Taylor Trade Forex Make Money.

When searchers click on these pages thinking they are going to my site, or a site related to me they are then forwarded on to a Binary Options website.

These unethical methods of manipulating search engine results are banned by Google, but still they list these scammers in search engine results.

I have emailed Google numerous times about this unethical practice but they still let these scammers do this. Its wrong, unethical and an infringement of my intellectual property rights.

My legal team are on the case, but these things take time and its unlikely Google will remove these doorway pages from its search results and time soon.

So for the record. I have not, and will not, at any time, past, present, or future, promote any products or services related to Binary Options.

If you see any promotion of Binary Options with either my name or my company name mentioned anywhere in search results please ignore it, because its a scam.

I am a professional Forex trader and mentor. I have never traded or will ever trade Binary Options, and any company or individual that promotes my involvement with these scams is breaking the law, and my legal team will take action against you and your company.

I promote my Forex training course and my managed Forex accounts service nothing else. Thank you for your understanding and have a great day.