Your weekly fundamental view (Oct 3-7)

October 03, 2016 16:48

Need to know

This week's main focus is US Non-Farm Employment Change (NFP) with average hourly earnings. The US retail sales data is scheduled for Friday. While NFP was below 200k last month, unemployment remains below the 5% target. As the US economy is at full employment, the US unemployment rate is likely to remain unchanged and have little impact on the FX market, in my opinion. The more important factor that is holding back the US Fed from raising rates is the low inflation rate, currently at 1.3% and below the 2% target rate.

Coming up

GBP Manufacturing PMI is released on Monday, 3 October. This data represents the level of a diffusion index based on surveyed purchasing managers in the manufacturing industry. The 50-point level separates expansion from contraction. Why should traders care? Businesses tend to react quickly to market conditions, where the purpose of the PMI data is to provide information about current business conditions to managers and the companies' decision makers.

US ISM Manufacturing PMI is released on Monday, 3 October. This data represents the level of a diffusion index based on surveyed purchasing managers in the manufacturing industry. The 50-point level separates expansion from contraction. Why should traders care? It is a great indicator for the leading economy and its economic health. Equities also tend to move when data is released. Watch for correlation between ISM Composite Index and S&P 500.

AUD Cash Rate and Rate Statement comes on Tuesday, 4 October. The statement of the official cash rate is important in the overall currency evaluation. We usually see the official rate priced in the markets, so it tends to have less initial impact than this statement and related press conference. The statement is the primary tools of RBA Board communication with investors about monetary policy. Why should traders care? Short-term interest rates create immediate and short-term impact in the markets, by providing cues in currency evaluation and short-term trade setups. Through the statement, traders can get a hint of future outcomes.

GBP Services PMI will be released on Wednesday, 5 October. This report is a survey of purchasing managers which asks respondents to rate the relative level of various and multiple business conditions. The reading of 50 is the median. Above 50, traders tend to go long on GBP currencies in the form of news spike trading, while below traders look for shorting into GBP currency spike. Why should traders care? Services data is an important gauge of the economy's health.

ADP Non-Farm Employment Change is due on Wednesday, 5 October. The ADP National Employment Report measures levels of non-farm private employment. The report is based on the actual payroll data from about 24 million employees processed by the Automatic Data Processing, Inc. It represents the estimated change in the number of employed people during the previous month, excluding the farming industry and government. Why should traders care? Job creation is an important leading indicator of consumer spending. ADP data usually predict weaker or stronger NFP reading.

Crude oil inventories are released Wednesday, 5 October. A build-up in crude oil inventories usually signals decreasing demand from refiners. On the other hand, a drop would signal that refiners are still producing at elevated levels and the inventory overhang in oil products could continue. This is primarily a US indicator, but it also affects CAD due to Canada's huge energy sector. Previous data showed a 1.9m barrels decrease. Why should traders care? The price of petroleum products influences inflation, which impacts oil-dependent industries.

US unemployment claims are released on Thursday, 6 October. These claims are the earliest national economic data, representing the number of individuals who filed for insurance for the first time during the past week. If the actual result came weaker than the forecast it would be deemed good for the currency. Why should traders care? The number of unemployed people is an important signal of the overall economic health and could hint at the future monetary policy steps.

CAD Unemployment Rate is released on Thursday, 6 October. This data is the early national economic data representing the percentage of the total work force that is unemployed and actively seeking employment during the previous month. Previous data shows 7% vs. 7% forecast for this week. Why should traders care? The number of unemployed people is an important signal of overall economic health and could hint at the future monetary policy steps. If the actual numbers are less than predicted, it will strongly influence currency.

Non-Farm Employment Change and Average Hourly earnings are released on Friday, 7 October. NFP data represents the overall change in the number of employed people during the previous month, excluding the farming industry while Average Hourly Earnings represent the change in the price businesses pay for labor, excluding the farming industry. Why should traders care? The Federal Open Market Committee and traders usually pay more attention to the core data. If the actual report comes better than the forecast, it will be good for the currency. The low inflation rate, currently at 1.3% and below the 2% target rate, is keeping the FED from raising rates. Traders should watch for possible surprises, as any negative move to the unemployment rate could send the USD lower.