Without any doubt, today's trading sessions will be rich in key economic reports from Europe and the USA. Theses are expected to become key market drivers for today's currency markets.
First of all, the European Central Bank is planning to announce its interest rate decision today, which will be followed by ECB President Mario Draghi's speech. During the press conference, the President of the ECB is going to give comments on the central bank's policies and decisions coupled with the central bankers' expectations and projections.
Apparently, such an even has all chances to trigger volatility spikes. As you might know, last week's decision was to cut the benchmark interest rate from 0,25% down to 0,15%. So far, interest rates manipulation has been the only effective weapon for the ECB, which is aimed at curbing a strong Euro amid low inflation far below the central banks' target of 2%.
The ECB's interest rate decision will be followed by Non-Farm Payrolls indicating the state of affairs in the US labor market. This is a key report as well, so it may well trigger big price moves in the currency market as well. As a matter of fact, the report is published on Friday but this time they decided to release the figures on Thursday since tomorrow the USA is celebrating the Independence Day.
So today' Forex may be awaken by the employment stats from the USA in advance of the day-off. In order to make traders change their mind over the US economic growth prospects, the payrolls need to exceed the expectations of 215 000 new jobs coupled with a steady unemployment decline under 6,3%.
At the same time, stronger-than-expected figures are capable of making the Fed reconsidering the direction of its monetary policy, which implies ultralow interest rates at least until mid 2015. The chart below indicates the monthly jobs change dynamics coupled with the rate of unemployment.
Yesterday's ADP report cam as a surprise, thereby showing stronger-than-expected performance at 281 000 in June. This is the strongest report since November 2012. The ADP employment report is often used a s a leading indicator for the non-farm payrolls report. Despite controversial economic figures coming from the USA, the monthly official employment report keeps on indicating a positive tendency – the US economic recovery sems to be accelerating.
If today's report is strong or stronger than expected, S&P500 may well set a new all-time high as it is close to the old one. At the same time, the US bond yields may also start growing together with the US currency.
At this point, Janet Yellen, Chairman of the Fed, keeps on sticking to low interest rates, thereby ignoring inflation hikes.
The US economic growth was hindered by unusually cold winter. The US GDP dropped by 2,9% in Q1 2014. Still, the best way to reestablish the recovery is to give people jobs, thereby boosting consumer spending.
First of all, it is about paychecks. Average hourly pay is one of the key things to pay attention to. The m/m and y/y hourly pay increase is 0,2% and 2,0% respectively. If this time the growth is stronger, market participants may well change their mind on the state of affairs in the US economy. When the y/y hourly pay increase is over 3,0%, this is a mere sing of economic strengthening.
Secondly, it is about long-term employment. If the level keeps on staying close to 36-year lows, this may well indicate major structural economic changes
The US economy will fully recover when the long-term rate of unemployment has failed to reverse to the mean seen before 2008. This may take a couple of years.
Thirdly, it is about the dynamics of new jobs change. Apparently, the payrolls themselves cannot be the key indicator of the US labor market health. Still, higher amount of new jobs is a positive sign indicating economic recovery. May was the 4th consecutive month when the amount of new jobs exceeded 200 000. This is the first time since 1999.
Mid-Term US Dollar Prospects
Masterforex-V Academy conducted comprehensive technical analysis to find out the following:
The H4 chart of the USD index has recently reversed the momentum. The price rebounded from the 79,94 support and triggered a new upswing within the scope of a bullish reaction.
The price may see further highs - 80,21 and 80,38 - if its breaks above 80,09 and consolidates above the level.
IF the forthcoming employment figures disappoint the market, the price may well resume the downtrend. If this is the case, we are likely to see the price touching 79,74. A break below it will give way to further lows.
