As we head into the long weekend in North America, financial markets are looking positive with stocks, bonds, and crude oil all trading in the green. The US Dollar, on the other hand, is consolidating its gains from the week and is trading mixed against the core G10 majors. This pro-risk market environment has led to gains in high beta FX, with the ZAR and MXN leading the way, according to Scotiabank’s Chief FX Strategist Shaun Osborne.
Looking ahead to next week, there are several key risk events that traders should keep an eye on. The USD received a boost from positive GDP data and weekly jobless claims that met expectations. However, continuing jobless claims remain high, indicating challenges for workers in finding jobs. Bloomberg reports also suggest a softer labor market, which could be highlighted in the upcoming Fed’s Beige Book release and NFP data next week.
Today’s core July PCE data is expected to show moderate price growth, which could impact the Fed’s stance on interest rates. While slightly faster core PCE growth may raise concerns about Fed easing, Chairman Powell is currently focused on employment data. A weak jobs report next week could fuel expectations of aggressive Fed rate cuts in the future.
Although the USD is on track to end the week with gains, it may not be enough to signal a reversal in recent losses. Short-term price signals are hinting at a potential softening in the DXY, and a stronger CNY could further dampen USD gains. The Chinese Yuan is trading at its highest level in over a year, breaking its longer-term bear trend, which could weigh on the USD’s strength.
Overall, the market remains optimistic heading into the long weekend, with positive momentum in stocks, bonds, and crude oil. While the USD is consolidating its gains, there are concerns about a softer labor market and the potential impact on future Fed rate decisions. Traders will be closely watching next week’s key risk events, including the Fed’s Beige Book release and NFP data, to gauge the health of the US economy and the likelihood of further rate cuts.
