The dollar is rising after a strong report on the labor market

  • And
  • +A

PMI data for the Eurozone published last week, demonstrate yet again that from slipping into recession while saving the service sector and industry are weak, and weak, because StuH locomotive Eurozone – Germany. The composite PMI for June was slightly better than expectations, however, published on Thursday, may data for retail showed a decline month-on-month by 0.3%, coinciding with the growth, and left the Euro under pressure. Finished the week strong, at first glance, the data on U.S. employment for June +224 thousand, waited for +160 thousand, in may, was +72 thousand (revised from +75 thousand).
However, average hourly wages grew below expectations, but upon closer inspection it turns out that half of employment growth is the “Birth-Death” guesstimate, not a result of direct surveys. But these nuances in the market did not pay attention, and the dollar strengthened against its major rivals, as fell the probability of a fed rate cut at the end of the month.
It should be noted that the fed remains under constant political pressure from trump, who has openly accused her head of Powell’s incompetence, and believes that it can send it, if desired, to resign. So, after the release of the employment report from tweeted:
“Strong jobs report, low inflation, and other countries around the world doing anything possible to take advantage of the United States, knowing that our Federal Reserve doesn’t have a clue! They raised rates too soon, too often, & tightened, while others did just the opposite as well as we are doing from the day after the great Election, when the Market shot right up, it could have been even better – massive additional wealth would have been created, & used very well. Our most difficult problem is not our competitors, it is the Federal Reserve!”.
The fed, it seems, appointed United States ‘ greatest enemy and political opponent of trump after the Democrats failed to campaign on charges of trump in collusion with Russia during his election campaign. That puts the fed and Powell personally in a very delicate situation: even if the statistics will give rise to lower rates, its decrease can be regarded as the result of political pressure trump, and harm the reputation of the fed.
On the other hand, if the fed will keep the rate (whether true, or just proving their independence), the stock market could fall in the aggressive correction, and the pressure on the fed side, trump will increase even more. Not once in the entire existence of the fed the US President tried to dismiss the head of the Central Bank, and if such a thing happened now, it may greatly harm the stability of the dollar.
Uncertainty is high, and we believe that by the end of the month, volatility in FOREX and stock markets begin to rise. We recommend that you consider this in trade and to reduce leverage. Technically, EUR/USD lost upside, and remains in the outset with broad boundaries 1.11 -1.14, inside which there is a more narrow area of consolidation 1.118 – 1.132. At these levels you can navigate to range trade medium-term trend, we believe, will become clear only at the end of the month after the fed meeting.
A more unambiguous picture in GBP/USD, which is under additional pressure due to the fact that “hawk” Boris Johnson in Britain has almost reached the seat of the Prime Minister. It is more likely continued decline. Accordingly, we think the growth potential of the EUR/GBP has not been exhausted, and goals for the fall are on long-term resistance of 0.93.

The ruble

The ruble to the dollar is corrected, the correction is largely technical in nature, and aimed at the psychological mark of 64 per dollar, which coincides with the 50% of the total June-building with 65.5 to 62.5. This goal will be made on Monday morning, after which the ruble will resume its attempts to strengthen. In his favor now playing some recovery of oil on Iranian fears, and continued high rates of ruble, amid expectations of decline, which causes the inflow of speculative capital in the BFL.
Towards the end of the month, the ruble will support the next tax period, and to hurt him could increase volatility due to uncertainty around the fed. Mid-term we continue to advise to buy the dollar, believing that in the fall it will be more expensive 65.

The US stock market

S&P-500 tested the 3000, however, the latest statistics destroys the logic of “the worse the better -0”, which grew all risky assets, while the dollar weakened. We believe that the index does not show significant growth before the end of the month, consolidating before the fed decision. Other stock markets can decline under the pressure of uncertainty, and to lose us, as if the softness of the fed is not confirmed, they will suffer more.
This applies in particular to emerging markets. Therefore, we continue to prefer us equities Russian, and are advised to close positions on the Russian market, expecting a development of the correction from the highs reached recently.
Dmitry Golubovsky
FG “Kalita-Finance”