Dollar Recovers Slightly Ahead of Private Jobs Data

Hurricane Harvey and concerns with Fed monetary policy keeping USD low

The US dollar is looking forward the release of employment data to turn around the negative trend against major currencies with a sixth monthly fall. Geopolitical anxiety rose after North Korea launched a missile over Northern Japan while in the United States Hurricane Harvey’s damage is yet to be fully assessed but could end up being one of the costliest storms in US history. The Conference Board released its consumer confidence survey results with surprise 122.9 points in the index. The improvement from last month shows a rising optimism from US consumers. The news was not enough to break the USD out against major currencies, but closed the gap ahead of the release of private payroll data.

US payroll processor Automatic Data Processing (ADP) will release its non-farm employment report on Wednesday, August 30 at 8:15 am EDT. The forecast calls for a gain of 186,000 positions which has been a consistent estimate by the consensus this year. The ADP report will be an important data point ahead of the release of Friday’s U.S. non farm payrolls (NFP). The government report includes a larger data set and is more influential. Although the correlation has not been high, the market does take into consideration the information from the private payroll report, specially around wage growth.

The dollar faces an uphill battle this week with the cost of the natural disaster impairing the efforts from the Trump administration to finally deliver on the tax reforms that boosted the greenback back in November. After the central bank summit in Jackson Hole left few insights on the monetary policy plans of the U.S. Federal Reserve and the European Central Bank (ECB) it is back to the hard employment data released this week to add clarity to currency valuations.

The EUR/USD gained 0.199 percent on Tuesday. The single currency is trading at 1.2001 after touching a high of 1.2070. The 1.21 price level proved to be a bridge too far and just breaking the psychological level of 1.20 took most of the wind of the EUR move. The move in the currency pair has been mostly on USD weakness as there have been few economic releases on either side of the ocean. The Trump administration’s timing on its tax reform push could have been better but could be one of the few silver linings for the dollar this week.

Political capital has been squandered in more divisive policies in 2017 and it is time to wonder if the Trump administration has anything left to push through the tax reform, deregulation and infrastructure spending policies that were promised right after winning the White House. The budget cuts to FEMA after what will be a very expensive clean up and rescue operation will not sit well with voters and could further politicians to seek some distance with the President, once again hurting the chances of republican majorities making the process straight forward.

Threats on the US debt ceiling, the NAFTA and North Korea have boosted safe haven assets this week. Fed Chair Janet Yellen offered little support for the big dollar with no comments on monetary policy, speaking instead about the importance of strong regulation on the eve of Trump’s deregulation policies. It is now almost a given that she will not get a second term at the helm of the Fed with Gary Cohn one of the most likely candidates to lead the central bank after Febraury.

West Texas Intermediate graph

US Energy gained 0.017 on the last 24 hours. The price of West Texas Intermediate is trading at 46.21 after the heavier rains from Hurricane Harvey have subsided. The aftermath of the storm still leaves close to 20 percent of oil production offline causing a glut of crude, but not enough refineries to turn it into gasoline prompting a spike in prices of the distillate.

Oil prices recovered on Tuesday ahead of the weekly inventories report due on Wednesday, at 10:30 am EDT. The estimate is for a drawdown of 1.9 million barrels last week before Hurricane Harvey hit Texas. Unlike Hurricane Katrina, Harvey has missed offshore platforms but hit refineries. This week’s data will paint a different picture as the shutdown in refineries has led to a surplus of crude that took a toll on the price of WTI. The disruption is expected to be temporary with the recovery coming in the next couple of weeks.

Market events to watch this week:

Wednesday, August 30
8:15 am USD ADP Non-Farm Employment Change
8:30 am USD Prelim GDP q/q
10:30 am USD Crude Oil Inventories
9:30 pm AUD Private Capital Expenditure q/q
Thursday, August 31
8:30 am CAD GDP m/m
8:30 am USD Unemployment Claims
9:45 pm CNY Caixin Manufacturing PMI
Friday, September 1
4:30 am GBP Manufacturing PMI
8:30 am USD Average Hourly Earnings m/m
8:30 am USD Non-Farm Employment Change
10:00 am USD ISM Manufacturing PMI

*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