WEEK AHEAD: OCT 04

Short Description

Non-farm payrolls & OPEC Meeting...

Video Script

Hi everyone, King dollar is back! The rally over the past week has carried the US dollar to its highest in a year. So as I preview the coming week in markets, I will discuss this dollar strength alongside the big events to prepare for - specifically non-farm payrolls, an OPEC meeting and interest rate decisions from the RBA and RBNZ. Stay right there.

 

So what’s going on with the US dollar? Well you can see if you pull up your MT4 trading platform that EUR/USD has broken down from the double top pattern that our team has been discussing in the weekly webinars. The move over the last week has happened alongside a rally in bond yields, which has been triggered by rising inflation expectations and a general risk-aversion. But bigger picture, Fed tapering means the policies that kept the dollar weak since March last year are being reigned in.

 

What’s interesting is that this dollar strength has happened since the disappointing August jobs report. This week we have non-farm payrolls for September. So then the question is if we get another weak report that misses expectations- does that mean the dollar keeps going up? I think it depends on the Fed but for now it looks like they want to taper this year irrespective of one or two soft jobs reports. If the weak NFP causes the Fed to signal there won’t be tapering this year- then I think that would probably send the dollar back down. In the stock market, another weak jobs report is a bad sign for the economy and earnings growth but if it means low rates for longer, that should be good for tech stocks and thus probably good at the index level too.

 

On Monday there will be the Twenty-first OPEC and non-OPEC Ministerial Meeting. As always, the decision is about whether the members should change their oil production quotas. The cartel has already agreed on a plan to raise output every month through the end of 2021. However, the energy crisis in Europe has helped propel the price of oil to a 3-year high since then. Brent crude has topped $80 per barrel. So there will clearly be a temptation from some members of OPEC, as well as Russia to raise output at a quicker pace to meet the demand. Watch out for a surprise quota increase beyond what’s already been agreed- that would a headwind to higher oil prices.

 

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OK let’s round off with the economic calendar. The big ones I’ll be looking out for is NFP on Friday, which I already discussed, as well as the RBA and RBNZ rate decisions. Meeting minutes from the last RBA meeting said the central bank doesn’t expect a rate rise until 2024. Clearly lockdowns in Australia will have set back the economic recovery so it just remains to be seen whether the RBA continues to taper. In September the RBA tapered its bond purchase from $5 billion to $4 billion per week. Another taper to $3 billion should be bullish for the Aussie dollar while keeping policy unchanged is probably bearish. There had been expectations that the Reserve Bank of New Zealand would actually hike rates this week but recent chatter from central bankers suggest they now prefer a more cautious approach.

 

Right thanks everyone, good luck trading this week and make sure to click on subscribe so you don’t miss the next episode of the week ahead.