This week is one of the rare few weeks of the year, where the financial markets await high risk economic data from the United States on a near daily basis. Consequently, all of the major currency pairs will be at risk of volatility and we can also expect additional movement in commodities, such as Gold.
On Tuesday afternoon, the latest US Consumer Confidence reading is scheduled to be announced and with consumer expenditure equating to the largest component of the US economy, this can have a direct impact on the currency markets. Recently, there have been some concerns over consumer expenditure releases, such as Advance Retail Sales missing expectations and a weaker than expected Consumer Confidence reading (especially one day before US GDP) could inspire some risk appetite back into the currency markets. Euro buyers would welcome the opportunity to regain some of last week’s 100 pips losses against the USD, with upcoming resistance levels located at 1.3460 and 1.3483.
Similarly, buyers of the GBPUSD will also be looking for an opportunity to recover losses after the pair unexpectedly declined for eight successive days for the first time since May 2012. The GBPUSD losses suffered last week were encouraged by investors seeking the USD as a safe-haven currency while geographical tensions controlled the financial markets attention, rather than due to a lack of confidence in the United Kingdom economy. GBPUSD resistance can currently be found at 1.7000 and 1.7013.
In regards to Wednesday, this has the potential to become the most volatile trading day of the year. From the United States alone, we are expecting the latest ADP Employment Change, 2nd Quarter GDP estimate and FOMC decision. In addition, Germany’s latest CPI (inflation) figures are also announced. In reference to the ADP employment change, the US employment sector has made remarkable progress over the past couple of months. Following last week’s Initial Jobless Claims dropping to an 8-year low, optimism is steadily increasing for this week’s non-farm payroll to impress. What’s interesting here is that just 15 minutes after the ADP employment change, the 2nd quarter GDP estimate is released. Spectators will be keeping a very close eye on how much of the 1st quarter GDP contraction was recovered in the second quarter and if the figure does not impress, investors will likely look towards Gold. If this occurs, current Gold resistance levels can be found located around 1308, 1321 and 1340.
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On Thursday, the latest EU CPI figures are released. According to Bloomberg, EU CPI remained at a stagnant 0.5% for the third consecutive month in July. If this is confirmed, it would likely reopen the debate for the ECB to introduce quantitative easing and we can expect euro softness as a result. Due to the volatility the EURUSD will likely have already experienced before Thursday, more suitable opportunities could be found in some of the minor currency pairs. For example, the EURGBP has rebounded since hitting a two-year low (0.7873) and confirmation of low EU CPI levels would likely encourage bearish movement in this pair. Current support can be found located at 0.7903 and 0.7888. Similarly, EURAUD support can be found around 1.4228 and 1.4205.
Finally, the week will conclude with the latest US Non-Farm Payroll report on Friday. As mentioned already, the US employment sector has made remarkable progress as of late, with the United States not only recovering all of the 8.5 million jobs lost during the recession, but also adding over 200,000 jobs for five consecutive months to their economy for the first time in nearly 15 years. In fact, the improving US employment sector is in some ways emerging as the corner stone of the United States economic recovery. If this Wednesday’s ADP employment change suggests that Friday’s NFP will be impressive but Wednesday’s 2nd quarter GDP estimate halts a USD rally, an impressive NFP on Friday would provide the USD with the opportunity to recover losses.
*Ahmad is chief market analyst at FXTM.
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