General Commentary
The EUR/USD gapped lower from the start, setting a bearish tone for the week. The move was triggered by comments from European Central Bank President Mario Draghi at Jackson Hole on August 22. In his comments, Draghi mentioned the ECB was considering additional forms of stimulus, including quantitative easing.
The selling pressure drove the EUR/USD to its lowest level since September 2013. Some of the selling pressure was triggered by bullish U.S. housing data and a jump in consumer confidence. Also helping to put the heat on the Euro was the drop in the annual rate of inflation in the Euro Zone from 0.4% in July to 0.3% in August. This put it at its lowest level in five years.
The U.S. markets are closed on Monday, September 1 due to a bank holiday. Trading volume may be light, but traders may react to the German Final GDP number if it misses the forecast of -0.2%. The Final Manufacturing PMI figure could also move the markets if it doesn’t meet the forecast of 50.8.
The key report to watch on Wednesday, September 3 is Retail Sales. Euro Zone retail sales are expected to show a drop of -0.3% from 0.4%.
On Thursday, September 4, the ECB will announce its benchmark interest rate. A press conference by President Mario Draghi will follow the announcement. Draghi may announce additional stimulus measures including the implementation of quantitative easing. This action tends to weaken the currency. Today’s session should feature volatility and a possible two-sided trade. Remember that no one is certain how much of any bearish news has already been baked into the market.
The AUD/USD finished higher last week. The market continued to consolidate inside a retracement zone bounded by .9352 to .9317, but with an upside bias.
Volume and volatility may be light on Monday, September 1 because the U.S. and Canadian markets are closed for the Labor Day holiday.
On Tuesday, September 2, Australian Dollar traders are expected to react to the latest Buildings Approval data. This report is expected to jump from -5.0% to 1.7%. The Reserve Bank of Australia is expected to keep its benchmark rate unchanged at 2.5%. In its statement, RBA officials may discuss the current value of the currency.
Wednesday, September 3 features the latest Australian GDP figures. The report is expected to show the economy grew at a rate of 0.4%. This is below the last report which showed a 1.1% gain. RBA Governor Glenn Stevens will also deliver a speech. Traders will be looking for comments about the value of currency.
Retail Sales and the Trade Balance will be featured on Thursday, September 4. Retail sales are expected to be positive at 0.4%, but below last month’s 0.6% figure. The trade balance is expected to show another drop to 1.77B.
On Friday, September 5, the focus will shift to the U.S. Non-Farm Payrolls report. Traders expect to show the U.S. economy added 222K new jobs to the economy. Traders will also be watching the Average Hourly Earnings number. It is expected to show a rise from 0.0% to 0.2%. Stronger-than-expected numbers will bring the Fed closer to raising rates which should have a bearish influence on the AUD/USD.
The USD/JPY soared last week, posting its largest weekly rise since July 2013. The rally was triggered when U.S. Federal Reserve Chair Janet Yellen suggested the economy was moving toward the central bank’s objectives.
In a speech at the central bankers’ conference at Jackson Hole, Wyoming, Yellen recognized the improvement in labor and inflationary conditions. While sounding a little more dovish than other Fed members, Yellen said the economy was strong enough to allow the central bank to focus on a few of the trouble spots such as labor market slack.
The upside momentum is expected to continue this week as investors take note of the acceleration of U.S. economic growth when compared to other developed countries such as Japan. Volume could be an issue this week. Because of the upcoming U.S. Labor Day holiday on September 1 and the end of the summer vacation season, many of the larger institutions may take to the sidelines this week, leading to low volume, but opening up the market to the possibility of expanded volatility.
The USD/JPY soared last week, posting its largest weekly rise since July 2013. The rally was triggered when U.S. Federal Reserve Chair Janet Yellen suggested the economy was moving toward the central bank’s objectives.
In a speech at the central bankers’ conference at Jackson Hole, Wyoming, Yellen recognized the improvement in labor and inflationary conditions. While sounding a little more dovish than other Fed members, Yellen said the economy was strong enough to allow the central bank to focus on a few of the trouble spots such as labor market slack.
The upside momentum is expected to continue this week as investors take note of the acceleration of U.S. economic growth when compared to other developed countries such as Japan. Volume could be an issue this week. Because of the upcoming U.S. Labor Day holiday on September 1 and the end of the summer vacation season, many of the larger institutions may take to the sidelines this week, leading to low volume, but opening up the market to the possibility of expanded volatility.
