Quiet Summer Trading Persists
G10 markets remain firmly confided within their summer ranges ahead of the headline Jackson Hole event at the top of the week. Markets are seeking something definitive from Fed Chair Yellen regarding the prospects of a US rate hike over the remainder of the year, something which a raft of Fed members have spoken about in recent weeks. However, this is a familiar situation and much of last year was spent with an expectant market disappointed by Yellen at various points throughout the year. Weak US growth and inflation numbers have blighted recent employment gains and cast a shadow over the event which some expect will see the Fed chair strike a more Dovish tone, weighing on the US Dollar.
For now, the US Dollar sits on an interesting precipice having found interim support at the base of a rising bullish channel. However, with the Dollar now back within the lower third of the range from last year’s highs to this year’s lows, the structure is starting to look like a bear flag which points to the further downside to come. Key support comes in at the June low (close) of 93.27 and beyond there the April low (close) of 92.52.
German 2Q GDP came out unchanged over the European morning today at 0.4% QoQ and 1.8% YoY. Exports meanwhile were higher than expected at 1.2% vs. 1% QoQ whilst Imports were significantly weaker at -0.1% vs. 1.4%. EUR was little changed on the data, still softening from data earlier in the week where, despite a strong EuroZone Composite PMI print in August of 53.3, Markit noted that “slowing in manufacturing order book growth and a dip in services optimism suggests that growth made fade in coming months.”
Fairly light data sheet today for the US session besides a raft of tier two US data with US MBA Mortgage Applications, Existing Home Sales, House Price Index and Crude Oil Inventories the noteworthy prints. Existing Home sales have been steadily rising since February’s Year to Date low of 5070 thousand to last month’s 5570 thousand print though are expected to have dropped back to 5510 thousand.
Following Jackson Hole on Friday, traders will then be looking ahead to the August employment reports due a week on Friday. Recent employment gains over June and July indicate positive momentum in labour market conditions and have traders will be keen to see whether this momentum has extended into a third month over Friday. Rate hike expectations have had a tumultuous time recently with positive employment gains, and supportive Fed commentary juxtaposed with weakening inflation and growth figures. However, the third month of solid employment gains might go some way to convincing the Fed that inflation is likely to firm up in the near term and will likely spur an increase in market rate hike expectations.
August Seasonality To Weigh On NFPs?
Over the last five years, however, August has typically been a month of weak employment and generally around the lowest of the year, averaging just 90k a month since 2010. However, a large part of this can be seen as linked to very low employment growth in the initial stages of the US recovery. Additional factors such as disruptions to Oil production, the European debt crisis, natural disasters in Japan and the fading of the inventory bounce can all be seen as perhaps disguising true seasonality, however, if we remove 2010 and 2011 from the sample, then August hiring is still weaker, though only marginally, than surrounding months.