NFPs To Generate New Volatility Next Week

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June 30, 2014 By: , No Comments


Forex markets saw some some continuation of the market trends that were established during the previous week.  Specifically, the US Dollar traded under pressure against some of its most commonly traded counterparts and it is now starting to look as though we will not see any major rallies in the greenback before the summer starts.

Against the British Pound (GBP), the US Dollar is still holding below the closely watched 1.70 level that has been the target of bulls for most of this year.  In similar moves, the USD/JPY actually managed to break the 101.50 mark that has consistently held prices on the weekly charts.  Even against the much battered Euro, the Dollar has given up ground and the EUR/USD is now trading well above 1.36 after bearish forex traders were unable to pierce the 1.35 psychological mark.

These moves might be transitory in nature, given the fact that some major trend activity has taken place in recent weeks.  In other words, we might see some forex traders taking profits on Dollar strength in pairs like the EUR/USD.  The indirect impact here would be upside pressure in currencies like the Pound and the Yen, which are commonly used as an alternative to the Euro when looking to play moves in Dollar denominated forex pairs.

The Week Ahead in Forex Markets:  Labor Markets Once Again in the Spotlight

In the week ahead, forex traders will likely see some slowdown in volatility until we see the major data releases that are focused on the back end of the week.  On Friday, we will have the monthly Non Farm Payrolls (NFP) release, which will create new trending moves in the Dollar denominated forex pairs.

Specifically, analysts will be most concerned with the broader trends that are in place for the US labor market.  For most of this year, we have seen data releases showing roughly 200,000 new job creations each month, along with an unemployment rate in the lower 6% range.  This has been encouraging for most forex investors and this has kept pressure on the safe haven currencies as a result.  If the economy is running along in an orderly and predictable fashion, currencies like the US Dollar tend to suffer because there are higher yielding opportunities that can be found elsewhere in carry trades.

On Wednesday, we will have an early NFP indicator in the ADP employment report, and this will create some added price activity before the ultimate NFP number is eventually released.  It is important to pay attention to the ADP numbers, as this will lead to some revisions in the broader expectations for what is likely to happen in the NFPs.  Look for a better number to lead to “risk seeking” behavior in forex markets.  This essentially would mean that carry trades would see a surge, as long as the numbers are relatively strong.

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