NFP posted the best figure in 6 months. USD/JPY shot up 100 pips only to retrace back to pre-NFP level in less than an hour.
We saw “mood swings” in the first hour of the release of NFP for June. 287K jobs were added, the highest in 6 months. However, May’s figure was revised downwards to a mere 11K, the lowest since Oct 2011! Average earnings slowed to 0.1% and unemployment rate went up to 4.9%, both performed worse than expected. The market celebrated initially as we saw USD/JPY shot up 100 pips in a minute, but the enthusiasm fizzled out quickly as we saw prices retraced back to pre-NFP level in less than an hour.
Although the figure is encouraging, we feel it is only good enough to increase the chances of rate hike in 2016 but not good enough for us to expect one this year. Market is not pricing in anywhere near 50% chance of rate hike. With the uncertainties from Brexit and US Presidential election, we foresee Fed to approach the next rate hike cautiously.
Brexit remains the top concern of the market. Both UK Construction and Services PMI underperformed. Manufacturing Production shrunk by 0.5%. Sterling hit 30-year low. Political uncertainties will continue to over-shadow economic data. If economic data echoes the concern of BOE’s Governor, Mark Carney, it will only give market more reasons to sell the pound. Are we seeing the bottom of the Sterling? Judging from current situation, our take is no.
Both Aussie and Kiwi benefit from the demand for yield. Market sort of shrugged off the political instability in Australia, S&P decision to downgrade Australia’s debt rating and chooses to focus on the fact that Aussie is still one of the higher yielding major currencies. New Zealand has relatively lesser risk compared to their neighbour. A heated property market has greatly reduced the chances of rate cut by RBNZ.
There are two central bank interest rate releases this week. Bank of Canada is expected to maintain their interest rate and optimism as usual. Oil prices may have dropped but it is still holding on much of the gain since start of this year. The most interesting would be Bank of England. This will be their first official rate announcement after the referendum. Market is bracing for a rate cut, expecting all nine members of MPC to vote for a rate cut unanimously. Even though market have priced in a rate cut to a certain degree, an actual rate cut could well possibly push the Sterling to another historical low.
GBP/USD – Bearish. The support around 1.2870 may be holding for now. BOE is expected to cut interest rate this week, an actual rate cut is likely to break the support.
AUD/NZD – Slightly bearish. As mentioned in the earlier paragraph, Kiwi has a slight edge over Aussie at this point in time. We do expect the downward momentum to continue.
Dow Jones (U30/USD) – Slightly bullish. As a follow-up from last week’s research, we continue to hold our view. Market has broke the 18,000 level. Our suggestion is to buy at the dip.
Fullerton Markets International Limited (FMIL) is committed to providing the highest level of service to its customers. In some instances, and due to regulatory or legal requirements, FMIL is unable to provide services or accept customers from certain countries. Currently FMIL does not accept customer from Iran, Cuba, Sudan, Syria and North Korea.
FMIL subscribes to the rules of FX regulated jurisdictions such as Hong Kong, Singapore, Japan and United Kingdom accordingly, does not accept solicited clients from these countries. This is not an exhaustive list of countries from which FMIL does not accept solicited clients and is updated as required. Customers should familiarise themselves with the FX rules applicable in their country's before deciding to use FMIL's services.
Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor.