The July US labour market update was an excellent reason to induce a correction on the Dollar, suppressing the upside momentum on the EUR/USD. Bringing some psychological relief to greenback bidders, the report, however, left the fundamental picture relatively untouched, since the Phillips curve in the American economy, is far from the classical hyperbole. Employment growth, in this case, was somewhat ahead of itself – firms hired more and increased investments in response to the Trump’s promises to reduce the tax burden on businesses and increase budgetary expenditures. Although, in the classical economic model, firms should react to the price increases (to be more precise, rising consumer demand). Difficulties with the economic implementation agenda of the new administration are fraught with the fact that euphoria will be replaced by uncertainty and will lead to an economic expectations rollback, what may be painful for the economy. Therefore, in the issue of medium-term policy forecasting, the FED will reasonably be guided by the progress in implementing the Trump´s expansion program.
One of the strengths of the July NFP was the increase in wages by 0.3% and given the high consumer expectations it provides hope for growth in consumption in July, and hence the improvement in inflation, which will be published on Friday. The market is also concerned about the confrontation between the US and North Korea, buying up Gold intensively, but not showing much activity in the Dollar. However, along with geopolitical tensions, the metal price may be affected by the growing doubt about the third increase in the Fed rate, which implies a further weakening of the Dollar. This is confirmed by futures on the federal fund’s rate, according to which the chances of tightening in December fell to 28.1%.
Oil prices slightly increased thanks to a bullish report from the API, which reported that stocks fell by 7.8M barrels with a forecast of 2.2M barrels. Prices are trading in positive territory expecting that the EIA report will confirm a larger than expected reduction in commercial inventories in the US.
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