Dollar Finds Support after Stein Comments
The US Dollar continues to find support in its renewed uptrend, as this week’s comments from Federal Reserve voting member Jeff Stein suggested that there will be discussions to begin reducing monetary stimulus (the Fed’s third round of quantitative easing) at the September meeting. This confirmation is giving investorsthe green light to move back into the greenback, as a lack of currency available in the system will put upward pressure on prices.
It should be remembered that these comments are coming at a time when most other central banks around the world are still firmly entrenched in their own stimulus programs. The diverging nature of these policy settings will likely help the US Dollar maintain its uptrend for the remainder of the summer. It will be important to keep an eye on the economic data; however, as it has also been made clear that a September policy change is set in stone. Next week’s macro data will provide some key clues for the sentiment direction that will be see at least in the early part of July, so it will be highly important to remain cognizant of these events.
The Week Ahead in Forex
Specifics on the data calendar will include Wednesday’s ADP employment report, which is expected to show a monthly increase of 158,000 jobs. This is a small increase from the previous month (135,000) jobs. But what is most important here is how the release will impact any revisions that are made to the major report of the week, the Non Farm Payrolls number. Market reactions tend to center on the headline number in this survey but it will also be important for longer term forex traders to pay attention to the accompanying unemployment rate that will be released contemporaneously.
June’s NFP number is expected to come in at 165,000 jobs added, which would be roughly in line with the 175,000 seen in May. For the past four months, the NFP number has come in roughly near this level, so it would not be entirely surprising to see something similar for the month of June as well. For longer term forex traders, it will be important to keep an eye on the unemployment rate, as this is the employment gauge that is most closely watched by the Fed in the current economic environment.
The central bank has said that there will no longer be a need for monetary stimulus once this rate drops to the 6.5% level. Currently, we are holding at 7.6% and the forecasts for June are for this number to hold constant. Any positive surprises will likely be viewed as highly positive for the US Dollar, and negative for the Euro, Yen and Aussie Dollar. Most of the early portion of the week is expected to remain quiet, however, as a good portion of the market will be reluctant to commit to new positions ahead of these important economic releases.