Dollar Mixed Ahead of Busy Economic Calendar

Private payrolls, unemployment claims, manufacturing data and oil inventories

The US dollar is mixed on Wednesday. The greenback is gaining against commodity currencies like the NZD, CAD and AUD but the current political turmoil has the CHF, EUR and CHF appreciating against the dollar. Added to the turbulence the Trump Administration is embroiled in regarding Russian connections, the ratings agency Fitch said today that the two pieces of legislation under review by Congress could limit the independence of the Fed and reduce the role of the dollar as the global reserve currency.

The ADP private payrolls employment change will be released on Thursday, June 1 at 8:15 am EDT. US unemployment claims will be published at 8:30 am EDT. The two US employment indicators will build the expectations for the U.S. non farm payrolls (NFP) due on Friday. The ADP is forecasted to show the US added another 181,000 jobs in May and the claims to be inline with previous weeks at around 230,000. The Institute for Supply Management will release the manufacturing purchasing manager index at 10:00 am EDT. The ISM manufacturing PMI has been deteriorating over the past months but is still expected at 54. A reading above 50 is considered an expansion.

Oil prices have been one of the biggest movers after doubts have risen regarding the ability of the Organization of the Petroleum Exporting Countries (OPEC) and other major producers to stabilize energy prices with their production cut agreement extension. The release of the US weekly inventories at 11:00 am EDT will bring more transparency to see the impact of their strategy, as it is being offset by rising US shale production and the end of the latest disruption to Libyan supply.

The EUR/USD gained 0.406 percent in the last 24 hours. The single pair is trading at 1.1235 after European data disappointed but the USD was unable to gain momentum as the chaos in Washington continues to impair the currency. German retails sales dropped by 0.2 percent and unemployment was reduced by less than expected to rattle confidence in the EU’s largest economy. Inflation data was soft, but close to forecasts which will be enough for the European Central Bank (ECB) to continue on the current path of balancing an end of negative rates, while tapering its stimulus program.

Dallas Fed Chief Robert Kaplan said yesterday that the 3 percent growth targets from the Trump administration are too aggressive and the US will probably growth at 2 percent. Fed Kaplan favours balance sheet reduction by this year with a gradual pace to take the process years to complete. Kaplan foresees two more rate hikes in 2017, in line with many of his colleagues and for the time being at least one more than the market is pricing in. The CME FedWatch tool has been slightly below 90 percent in probability of a June rate hike leaving the fed funds rate at 100 to 125 basis points. Political uncertainty and monetary policy are too evenly matched at this point and the dollar will need some clarity from economic data if its go give the monetary policy divergence edge to the greenback.

The ISM in Chicago offered a correction to its data release showing a better than expected 59.4 reading. The original report was a disappointing 55.2 reading. There will be some anxiety regarding the ISM release of the manufacturing PMI data given that no explanation was given on the erroneous data that stood for 93 minutes.

The price of oil fell 2.714 percent in the last 24 hours. The West Texas Intermediate is trading at $48.08 after the supply disruption in Libya has been sorted and the OPEC member nation is now reporting a daily production of 827,000 barrels, before the problems at the country’s biggest oilfield, El Sharara, had production at 794,000. Oil prices are at three week lows despite the efforts from the OPEC and other producers to cut production to stabilize prices.

With the meeting in Vienna on May 25 now in the past traders are not sure the OPEC is doing enough as it followed the script set by the dual press release form Saudi Arabia and Russia earlier in the month. US production is still on the rise and even the OPEC members outside of the deal are ramping up production giving traders concerns about how much of the glut can really be reduced, when the actual demand for energy has not increased.

Market events to watch this week:

Thursday, Jun 1
4:30 am GBP Manufacturing PMI
8:15 am USD ADP Non-Farm Employment Change
8:30 am USD Unemployment Claims
10:00 am USD ISM Manufacturing PMI
11:00 am USD Crude Oil Inventories

Friday, Jun 2
4:30 am GBP Construction PMI
8:30 am CAD Trade Balance
8:30 am USD Average Hourly Earnings m/m
8:30 am USD Non-Farm Employment Change
8:30 am USD Unemployment Rate

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

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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