Euro Braces for ECB, Draghi. US Dollar Eyes CPI Data

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US Dollar, Powell Speech, S&P 500 Outlook

  • US Dollar, local equity markets brace for Powell speech, jobs data
  • Recent economic reports have given a worried outlook for growth
  • Markets use read data print as excuse for ultra-aggressive easing

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The US Dollar and domestic equity markets will be closely watching the release of critical US jobs data and a speech by Fed Chairman Jerome Powell. This past week, key economic reports have fallen short of expectations and fueled what are arguably ultra-aggressive easing expectations. Overnight index swaps went from pricing in a 39 percent chance of a cut in October at the beginning of the week to now over 80 percent.

US economic data has recently started to outperform expectations after chronically missing estimates for over half a year. However, markets are now seeing that reverse and have priced it in accordingly. This week’s release of weak ISM composite data highlights the impact of the US-China trade war. The upcoming nonfarm payrolls data may fall in line with the previous data releases this week and further fuel rate cut bets.

Officials have reiterated that the trade war continues to be a major headwind for businesses who are reluctant to commit capital and expand their enterprise in an uncertain environment. Softer inter and cross-border investment has also been a symptom of the trade conflict and has hindered job creation and other elements that typically push inflation higher.

Adding to the gloomy presentiments is the recent escalation in EU-US trade relations after the WTO gave a landmark ruling on a 15-year dispute between the two allies. It awarded Washington the legal right to impose tariffs against Europe of up to $7.5 billion, though the US may not stop there. They have also considered implementing auto tariffs on national security grounds – another possible headwind to global growth.

To get more in-depth market analysis, follow me on Twitter @ZabelinDimitri.

Chart of the Day: Dismal US Economic Data Pressuring Federal Funds Futures

Federal Fund Futures chart created using TradingView

US DOLLAR ANALYSIS AND TRADING RESOURCES

— Written by Dimitri Zabelin, Jr Currency Analyst for DailyFX.com

To contact Dimitri, use the comments section below or @ZabelinDimitrion Twitter

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