The Week Ahead in FX: Will Upcoming US Jobs Data Swing Momentum To The Dollar?

  • US Manufacturing and jobs data will be pivotal this week, as will further speeches by Fed Officials
  • AUD could be poised for further gains if equity markets rally in December
  • Sterling remains tricky to trade amid continuing Brexit uncertainty

The US Dollar was on its heels following Jerome Powell’s comments last week that current US interest rates weren’t far below the neutral rate. But the greenback will have plenty of chances to recover some ground this week, as there is a wide array of data due which could swing momentum back towards the USD if the numbers surprise on the high side.

ISM Manufacturing data is due first up on Monday (US time), with the ADP private employment numbers on Wednesday, followed by the big one which is Non-Farm Payrolls data on Friday (not to mention that Chairman Powell will also be making further public speeches this week). How the USD performs this week will be data-dependant, because while FOMC officials may again take a cautious tone with their language, it is the cold, hard economic data that may speak the loudest.

December is historically a good month for the equity market, and if that trend continues this year it will put the AUDUSD rate in good shape to make forward progress towards the 0.74 handle. A turnaround in the fortunes of the major US indices at the end of November increased the appeal of the Aussie Dollar, with the technical indicators looking reasonably bullish from a momentum perspective. This week we have the RBA interest rate decision on Tuesday, which is expected to be another non-event, leaving the focus more so on Wednesday’s GDP release ahead of Retail Sales numbers on Thursday.

The British Pound ended last week on a softer note, and with more potential Brexit headwinds this week we can’t rule out further downside moves in the direction of its yearly low (1.2661), especially if Theresa May fails to start getting more allies on her side in attempting to get the draft deal approved by Parliament on December 11th. The GBPUSD rate remains a tricky proposition to trade as it is liable to swing rapidly higher or lower as the UK political situation plays out. Keeping your stop orders tight might be the way to play it for now, but caution is advised with the Brexit deal hanging in limbo.

Market reaction to the weekend’s Trump and Xi meeting will decide whether it’s the safe-haven currencies such as the US Dollar, Yen and Swiss Franc that find support, or whether traders instead choose to go long on the likes of the Euro and Aussie Dollar on the basis that risk-assets will rise. With signs that there will be a freeze on tariffs at 10% while further talks take place, a favourable reaction from risk-assets to start the week looks on the cards. But there are still plenty of things to play out before a final deal is done, so we don’t expect this story to disappear from the headlines anytime soon.

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