Market Drivers July 30, 2015

Post FOMC dollar keeps it bid
German unemployment rises -worst in a year
Nikkei 1.08% Europe -0.08%
Oil $48/bbl
Gold $1085/oz.

Europe and Asia:
AUD Building Approvals -8.2% vs. -0.8%
EUR GE Unemployment 9K vs. -5K

North America:
USD Weekly jobless 08:30

USD GDP 08:30

USD Trade 08:30

The dollar maintained its bid in post FOMC trade in Asian and early European trade as USD/JPY crossed the 124.00 barrier while euro remain below the 1.1000 level drifting to a low of 1.0940 before bouncing slightly.

Despite lack of any clear indication that the Fed will begin hiking rates in September, the market decided that the statement from the FOMC maintained its overall hawkish posture laying the groundwork for eventual policy normalization.

As our colleague Kathy Lien pointed out, “The Fed said they wanted to see additional improvement in the labor market and with 2 non-farm payrolls report scheduled for release before the September meeting, the central bank could still have the evidence they require to raise rates. Furthermore, their outlook for the economy remains positive with the labor market continuing to improve, solid job gains noted and diminished labor market slack.”

Still there is plenty of uncertainty surrounding the timing of the rate hike and as many analysts have pointed out one of the key stumbling blocks for the Fed is the lack of any appreciable gains in inflation. Indeed with oil prices down since the last meet, the FOMC dropped the line about energy prices stabilizing from its communique tacitly acknowledging that inflation pressures as non-existent.

Meanwhile in Europe today the only release of note was the German unemployment data which printed its worst reading in nearly a year. German unemployment jumped to 9K from -5K eyed while prior month was revised to 1K from -1K. This certainly is not good news for EZ largest economy and it suggests that the wrangling over the Greek debt crisis may have taken its toll on business hiring as companies turned more cautious. It may also be a hint that the German growth cycle may have peaked as demand from China and the collapse of commodity based economies across the world has cooled demand for the country’s exports.

The euro essentially shrugged off the data, but if the slowdown proves to be more than a temporary stall it could create a fresh set of problems for European monetary and fiscal authorities seeking to jump start in the region.

In North America today the focus will be on US GDP data for Q2 expected to jump to 2.6% from -0.2% the quarter prior. There is a potential for an upside surprise given the improvement in Retail Sales and Trade data and if the number does print closer to 3% it will no doubt extend the rally in USD/JPY possibly pushing the pair to 124.50 as speculation will mount that September rate is a real possibility. If on the other hand the GDP data misses it may unwind much of yesterday’s gains as markets push out rate hike expectations to December.

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