USD Weaker Ahead of November FOMC

Dollar stumbles awaiting central bank decisions and employment data

The USD started November losing ground versus major pairs. U.S. election’s uncertainty has risen after the FBI announced its new investigation into Secretary Clinton’s emails. Clinton’s lead in the polls has been challenged as Trump has taken advantage of the investigation to appeal to undecided voters. The U.S. dollar gained 1.50 percent versus the Mexican peso (MXN) in the past 24 hours, while the safe haven destination gold has risen 1.31 percent as political anxiety heats up ahead of the November 8 vote.

U.S. employment data releases will begin with the ADP private payrolls report on Wednesday, October 2 at 8:15 am EDT. The forecast is calling for a rise of 150,000 to 160,000 new jobs added in the last month. The number of jobs in America has risen, but there are doubts around wage growth that have sapped the positive effect of job creation on the USD. The ADP is the preamble to the U.S. non farm payrolls (NFP) report that will be published on Friday.

The U.S. central bank will release the statement from its November Federal Open Market Committee (FOMC) on Wednesday, October 2 at 2:00 pm EDT. There is no change expected to the interest rate so close to the elections, but traders will be looking for clues on the Fed’s next move next month. The Fed closed 2015 with the first rate hike since the crisis, but has gone for the majority of 2016 without following through with a second rate hike. The CME’s FedWatch tool based on the Fed fund futures price has a 73.6 probability of a rate hike in December.

The EUR/USD lost 0.848 percent in the last 24 hours. The single pair is trading at 1.1059 ahead of several central bank appearances this week. One of the most anticipated is the November FOMC. There is little probability of a rate hike change to be announced but the market will be looking for insights in the text of the statement that point to a move in the final monetary policy meeting of the year. The November release of the FOMC statement is not followed by a press conference which has always reduced the importance of the meeting versus those that do feature the Fed Chair fielding questions from the financial media.

US Dollar versus Mexican Peso

The USD/MXN has gained 1.498 percent in the last 24 hours. The timing of the newly announced investigation by the FBI was perfect to disrupt what was a one sided affair after Clinton’s good results during the debates. This U.S. election will be known for the influence of media outlets and the sheer number of scandals that could end up deciding who will be the next political leader of the U.S.

The MXN has been a proxy for emerging markets given the high liquidity of the currency. Ever since Donald Trump’s heavily publicized comments about Mexicans and his goal of building a wall the MXN has also been a proxy for the the probability of a Trump win. The MXN has depreciated since Friday and continues to lose ground the more the Trump camp advances in the polls. A Trump win would not be beneficial for Mexico as it could mean an end of NAFTA as well as further complicating trade relations between the two nations.

Market events to watch this week:

Wednesday, November 2
5:30am GBP Construction PMI
8:15am USD ADP Non-Farm Employment Change
10:30am USD Crude Oil Inventories
2:00pm USD FOMC Statement
2:00pm USD Federal Funds Rate
8:30pm AUD Trade Balance
Thursday, November 3
5:30am GBP Services PMI
8:00am GBP BOE Inflation Report
8:00am GBP MPC Official Bank Rate Votes
8:00am GBP Monetary Policy Summary
8:00am GBP Official Bank Rate
8:30am USD Unemployment Claims
10:00am USD ISM Non-Manufacturing PMI
8:30pm AUD RBA Monetary Policy Statement
8:35pm CAD BOC Gov Poloz Speaks
Friday, November 4
8:30am CAD Employment Change
8:30am CAD Unemployment Rate
8:30am USD Average Hourly Earnings m/m
8:30am USD Non-Farm Employment Change
8:30am USD Unemployment Rate

*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