Week Ahead After Strong NFP Dollar Rally to Face Retail Sales Challenge

US jobs gain puts Fed’s September rate hike back on

The U.S. added 255,000 jobs in July exceeding expectations after adding a revised 292,000 jobs in June. The May employment figures were also revised upward from a horrendous 11,000 to 24,000. The USD gained across the board as employment continues to be the strongest pillar of the U.S. economy. The U.S. non farm payrolls (NFP) report hit all the right notes with job gains, wage growth and small upticks in the participation rate leaving the unemployment rate steady at 4.9 percent but the biggest contribution was easing market fears about the slowdown of the American economy after a soft advanced gross domestic product (GDP).

The U.S. retail sales will be published by the Census Bureau on Friday, August 12 at 8:30 am EDT. Retail and core data were above the forecast last month and are now expected to gain at a slower rate. Retail sales are anticipated at 0.4 percent and core retail sales at 0.2 percent. Consumer spending has been gaining momentum after confidence figures showed Americans were optimistic about the economy.

Major central banks are deploying easing monetary policy campaigns with the Bank of England (BoE) forced into action after the British vote to leave the European Union. The strong NFP report reaffirms the possibility of a rate hike in 2016 from the U.S. Federal Reserve to highlight the growing divergence between central bank policies.

The EUR/USD lost 0.931 percent in the last trading week. The single currency is trading at 1.1066 and after the strong employment numbers in the U.S. could threaten the to break under the 1.10 price level. There was little economic data in Europe the week of August 1 to 5 and the focus of the market was on U.S. employment which performed beyond expectations starting with the release of the ADP payrolls data on Wednesday. The gain of 179,000 hinted at a continued pace of steady growth.

The Bank of England (BoE) exceeded market forecasts this week with a 25 basis points rate cut and a restart of its bond buying program to offset the challenges put forth by the British vote to leave the European Union. Governor Mark Carney was clear when addressing British banks that he expects the lower rates to trickle down to households. Central bank after central bank have found it challenging to persuade the market but for the time being the BoE has managed to depreciate the GBP which could boost growth in the long term for the United Kingdom.

The strong gain in U.S. jobs has put the Fed in a stronger position to raise interest rates this year. The cautious tone from this year by the American central bank and the proximity to the presidential elections make September a long shot, with markets eyeing a December rate hike in a repeat of last year.

The USD dollar will face a challenging U.S. retail sales report on Friday, August 12 after industry reports point to a weakness in auto sales. The core retail sales which excludes the volatile auto sector is not expected to grow by much, but a slight gain could continue the trend and keep slowdown fears at bay.

The USD is higher across the board with the biggest moves being gold with 1.7 percent and the Canadian dollar against which the USD has gained 1.14 percent in the past 24 hours.

Market events to watch this week:

Tuesday, August 9
4:30am GBP Manufacturing Production m/m
11:05pm AUD RBA Gov Stevens Speaks
Wednesday, August 10
10:30am USD Crude Oil Inventories
5:00pm NZD Official Cash Rate
5:00pm NZD RBNZ Rate Statement
5:05pm NZD RBNZ Press Conference
Thursday, August 11
8:30am USD Unemployment Claims
6:45pm NZD Retail Sales q/q
10:00pm CNY Industrial Production y/y
Friday, August 12
2:00am EUR German Prelim GDP q/q
8:30am USD Core Retail Sales m/m
8:30am USD PPI m/m
8:30am USD Retail Sales m/m
10:00am USD Prelim UoM Consumer Sentiment

*All times EDT
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza