What Happened Last Friday
There were two big events/releases on Friday. First was news of a major breakthrough in Brexit negotiations & Second, the US NFP/Average earnings data.
Have you ever heard of the phrase: ‘Buy the rumour, sell the fact’? If you haven’t, you just saw it in action on the British Pound on Friday.
Sterling skidded on Friday, trading almost two U.S. cents below a high reached earlier after a breakthrough in Brexit negotiations, with cautious traders booking profits after a sharp rally in recent days.
Britain and the European Union reached a divorce deal on Friday that paves the way for arduous talks on future trade ties, easing immediate pressure on Prime Minister Theresa May and raising hopes of an orderly Brexit.
That sent sterling rallying to as high as 1.3521 earlier in the day, and to a six-month high against the Euro, on relief that an EU summit next week will clear the talks to move forward to trade and transition arrangements.
But with Britain’s economy still facing headwinds, traders were quick to take profits on sterling, pushing it down on the day.
Sterling dipped to as low as 1.3356, down almost 0.9% on the day. Against the Euro, it slipped 0.8% to 88.06, having earlier strengthened to 86.90.
The Forex roadshow then turned to the US data with NFP & Average earnings due for release.
The USD rose against the Euro and Yen in choppy trading on Friday after a report showed the U.S. economy created more jobs than expected last month, but gains were capped by wages data that analysts said were disappointing.
That could weigh on the pace of interest rate rises next year as the Federal Reserve grapples with sluggish wages that reflect persistently low inflation, analysts said.
The USD Index came off three-week highs after the report, while the Euro, although still down on the day, recouped some of those losses.
U.S. non-farm payrolls rose by 228,000 jobs in November amid broad gains in hiring as distortions from recent hurricanes faded. Economists polled by Reuters had forecast payrolls rising by 200,000 jobs last month.
But analysts said average hourly earnings were lower than expected. Average hourly earnings rose five cents or 0.2% in November, but economists expected a 0.3% rise. The annual increase in wages was also weaker than forecast: the November figure came in at 2.5% versus a 2.7% expectation.
The general consensus in the makert is; the lack of wage pressure will not alter the Fed’s rate hike aspiration in the coming meeting, but will certainly be a major discussion point for the new Fed chairman in 2018.
Following the data realease the USD spiked lower against most major currencies, before slowly regaining much of those losses before the close of the week.
The USD index traded in a tight range despite the data and closed the week at 93.90, not far from the 3 week high of 94.08.
The Fed is widely expected to raise interest rates at next week’s monetary policy meeting and for now is seen tightening two to three times next year.
With a rate hike priced in, traders are more focused on what the Fed may signal about its monetary policy outlook next year. In the Fed’s last quarterly projection from September, the U.S. central bank indicated three more hikes in 2018.
The USD should consolidate at current levels and if anything trade higher until we hear more details from the FOMC on Wednesday.
But this coming week is all about Sterling with Brexit in the frame and major UK economic data scheduled just about everyday this week.
This Weeks Key Fundamental Drivers
Sterling, Sterling, Sterling ….. if you never trade it you might as well sit this week out!
Well that’s not entirely true because we do also have the ECB, SNB and FOMC meetings as well as some other heavy hitting US numbers.
All in all it’s a solid week of data with major UK data on most days as well as the BOE meeting on Thursday.
But remember, often the best trade is not on the pair with the data release, so make sure you scan across all the major pairs.
Don’t even bother days: Monday
Biggest days of economic data: Wednesday & Thursday
Major currency in focus: Sterling
There’s no point getting involved at all, so please don’t waste your time in front of the screens waiting for something to happen!
Tune up your charts and then take your dog for a walk, play golf, go fishing, do some gardening, go for a surf etc…..
It’s round one for Sterling with a few major numbers scheduled.
Key data to focus on:
GBP – CPI & PPI
It’s action stations with major data sceduled for both GBP & USD.
Key data to focus on:
GBP – Claimant Count Rate, Average Earnings, Unemployment Rate
USD – CPI & FED Interest Rate Decision
Finally we get something decent for the Asian session with major Aussie data due.
But there’s bigger fish to fry with the BOE & ECB meetings.
Key data to focus on:
AUD – Employment Chnage & Unemployment Rate
CHF – SNB Libor Rate
GBP – Retail Sales, BOE Interest Rate Decision, Vote Count Change, Minutes
EUR – Services PMI, ECB Interest Rate Decision
USD – Retail Sales
The best part of the week is behind us but there’s still a few things to deal with.
The Tankan is historically a big deal for the Yen…so check it out as you never can be sure when the Beast will take off.
And there’s a few cheeky’s in the North American session to close us out!
Key data to focus on:
JPY – Tankan
CAD – Manufacturing Sales
USD – Industrial Production
Technical Set Up – What’s Happening with the Majors
The good thing about the NFP data not being too crazy is the major pairs aren’t too far away from where they were last week.
Continues to slide lower and looks to be in a nice downtrend at the moment. Thursday’s employment data will be the focus for local data.
It’s a tough trade at the moment. AUDNZD selling has been keeping it a little bouyant. Direction will come from the USD this week.
Finally reacting to the strong USD. I like this pair higher towards 114.50 at least this week.
Continues to slide lower and looks to be in a nice downtrend at the moment. The ECB this week should give it a spark.
Brexit, load of data and BOE meeting….what more would you like? It’s going to be busy that’s for sure.
Slowly trading away minding it’s own business. It didn’t react to kindly to Friday’s NFP data but it’s got to rally if the USD continues higher.
It’s a battle between the USD and Oil at this point. Sideways for the first half of the week.
Join us for the 3rd of a 5 part Series on: How do Bankers trade forex?
Part 3: Why do the markets go up & down? It’s the Fundamentals of course!
In the third part of this 5 part series we look what gives the markets a pulse – the Fundamentals.
This is the most unknown area of the market & that’s because no one ‘except the bankers’ understand it and focus in on it. The majority of bandits in the retail market have no idea what’s going on & that’s why they say ‘stay away from the fundamentals’.
I’ll run you through everything from central banks and economic data to the crazy geopolitical issues that impact the market.
Once you understand the Fundamentals everything else will start to make sense!
USA – 7.00pm Wednesday 13th December
UK – 12.00am Thursday 14th December
AUST – 11.00am Thursday 14th December
The webinar will go for around 30 minutes – short and to the point!
The idea of this “Week ahead” is to give you some guidance into your preparation. Make sure you don’t waste unnecessary time in front of the screens.
Remember you need to be fresh, confident and ready to trade and by sitting aimlessly in front of your screens you will become stale and uncertain.
The key to your sucess: Isolate the days or sessions that work for you and focus in on them. Don’t worry about things that you can’t make.
So tune up your charts & prepare for the week ahead.