Tom Tragett here with your weekly update on the world’s most exciting capital market: the foreign exchange. What’s been going on this week...?
Well, today, everybody was looking at the American job market for a clue to the health of the economy... and they were disappointed.
Today’s US non-farm payrolls report and unemployment figures showed much lower job creation than had been anticipated by the market.
During the week, expectations had risen to a number of some 250,000 or more non-farm jobs created in June. This would have gone some way to make up for May's weak number of just 75,000.
In the event, the number came in at just 121,000, with the unemployment rate unchanged at 4.6%.
Great news for buyers of yen
The short USD/JPY position we have at Forex Profit Alert is currently looking healthy as the dollar has broken down through support at 114.10, currently trading at 114.05. For most of the week the dollar had been largely range bound awaiting the release of these numbers – but it’s certainly finishing the week on the back foot.
Our trade is also being helped today by reports of a special meeting by the Peoples’ Bank of China. The word is that the meeting is centered on revaluing the yuan again. Indeed the Chinese currency was fixed today at a new low under 7.99 to the dollar, increasing the speculation that such a move is possibly imminent.
This is the third weak monthly jobs report in a row which definitely curbs calls for further Fed action on rates. The markets are definitely expecting the Fed to now pause in the current cycle of rate increases.
We may look to bank profits next week if we get a big move
The Bank of Japan is due to meet next Friday and, as I have said to subscribers, we will remain in our position until that meeting is out of the way.
However, we may have an opportunity to take profits before that meeting as the markets may sell the dollar aggressively next week – we’ll see.
The reason I say that is that if there is a big sell- off, then a BOJ rate move may become priced into the market. If that’s the case, then we may exit the position before the announcement.
Stocks, oil and gold...
The equity markets continue to nose their way higher ending the week on good levels. That’s partly because this key job data keeps the fear of further US rate rises subdued. It’s clear that the US rate environment is currently driving global equity markets.
The real movers this week are oil and gold, which have been helped higher by delays to talks in Iran and the large firework display off North Korea.
Gold looks to be ending the week near key levels at $630 and oil has made fresh highs clearing those seen in April at $75.30, currently trading at $75.60.
Despite concerns over North Korea abating, oil looks to close the week on its highs as continued supply/demand issues continue to dictate the price.
Forget the hyperbole, oil is higher because there simply isn't enough around. Gold is higher, in part, as it is a dollar trade and rises when the dollar is weak. The dollar is looking very vulnerable... so gold moves higher.
A new major currency trade of the future
Here’s something that’s going to be very big one day.
You may have heard or read that the Russian rouble became convertible this week, allowing free movement of capital in and out of the country with no restrictions.
You and I can’t trade it yet – but we will be able to one day. And it could be a huge player. It will be a very active currency and the euro/rouble cross is likely to attract much interest in the future. It looks likely to end the week pretty much where it started at around 26.80 to the dollar.
We will be looking more closely at both CHF/JPY and NZD/JPY next week as these look likely to attract much attention after any move in Japanese interest rates.
One thing is for sure and that's that there is plenty going on in the foreign exchange markets - and next week there could be new trades lining up.
Have a great weekend... and look out for Simon Munton's Monday Profit Watch - he's got some great ideas for you.
Kind regards,
Tom Tragett
Profit Watch
