Trading For The Remainder Of The Week - August 3, 2016

US Consumer Spending for June is up 0.4% – What Does That Mean?

The increase in US consumer spending between May and June 2016 was 0.4%. The consensus forecast among analysts was an increase of just 0.3%. This marks the third successive month of gains in US consumer spending, as nondurable goods increased by 0.7%. On Wednesday, 3 August at 8:15 AM, the ADP employment change figures for July will be released. The consensus forecast is 162,000 and the previous figure was 172,000.

Additionally, the Markit Composite PMI final for July as well as the Markit Services PMI final for July will be released at 9:45 AM with consensus forecast of 51.5 and 50.9 respectively. These are both expansionary figures since they are above 50. On Thursday, 4 August, several important tidbits of economic data will be released in the US including initial jobless claims for July, factory orders month on month and the EIA natural gas stocks change figures.

The week will be capped off by several important economic releases on Friday including the balance of trade for June, non-farm payrolls for July and the unemployment rate in July. Depending on what the numbers say, we will see trading activity respond in kind. The recently released GDP figures showing 1.2% growth had a negative effect on the USD and Wall Street, given that economists were anticipating at least 2.5% growth. Presently, the unemployment rate is 4.9%, the inflation rate was last measured at 1% and the federal funds rate is 0.5%. US Government Debt/GDP ratio is 104%. Provided we still see positive, albeit sluggish, growth in US figures the greenback will remain strong.

Further Afield: What Trading Opportunities Are Out There?

(Click on image to enlarge)

The DXY (US dollar index) decreased by 0.681 points to 95.11 on Tuesday, 2 August. It has declined by 2.1% during the last week alone indicating that poor economic data coming from the US is affecting the greenback. The GBP/USD pair is going to be an interesting one to watch this week. Presently this pair is trading at 1.3291, up 0.8320% as it attempts to breach the 1.33 resistance level. This pair will be influenced by the Bank of England decision on interest rates on Thursday, 4 August. If the purported 25-basis point rate cut is implemented, this means that the UK interest-rate will be just 0.25%. A weakening of interest rates has a negative effect on the currency, and this will see the GBP/USD pair reversing course.

Looking Further Afield to Global Currencies

(Click on image to enlarge)

Further afield, the USD/JPY currency pair is going to headline in a big way once again. Fiscal policy stimulus measures combined with monetary policy stimulus measures should in theory at least weakened the JPY. We are seeing the yen trading strongly against the dollar at its current level of 101.0430. The yen has appreciated in a big way as this pair is shared 1.2616% or 1.2910 points. Currency traders were concerned when this pair was strengthening towards its 52-week low of 99.97. The pair is currently a whisker off its 1-year low and it is strongly bearish at this time.

The GBP/EUR currency pair is currently trading 0.3929% higher at 1.1855, up 0.42%. It is also close to its 52-week high of 1.1872. This pair has traded in a broad range from a high of 1.4299 on November 18, 2015 to at present level of 1.1851. The trend is clear with this pair as well – negative. The EUR continues to dominate in spite of a stabilisation of the GBP. One of the most interesting emerging market currencies is the South African rand. The USD/ZAR currency pair is currently down 9.60% for the year-to-date and it is trading at 13.9758. The 5-day performance of this pair has shown a depreciation of 2.63% after starting on Wednesday, July 27 at 14.3538. Nonetheless, this is a marked improvement for the ZAR since it was trading well above 15 for quite some time.

Will the Supply Glut Continue with Crude Oil?

(Click on image to enlarge)

WTI crude oil is currently trading at $40.71 per barrel on the New York Mercantile exchange while Brent crude oil on the ice exchange is trading at $42.94 per barrel. Oil prices have come in for some Recently as news of oversupply dominates markets. Nonetheless, the brief scare below $40 per barrel has abated and a recovery appears to be underway. During the course of the past week, oil prices plunged by over 10%, but the issue now is not the $40 per barrel figure, but the supply glut that will drop it further. On Tuesday, 2 August, Brent crude oil edged 2.3% higher to $43.10 per barrel while WTI crude oil increased by 2% to $40.87 per barrel, before settling at a lower price. The problem with crude oil is that worldwide fuel inventories at refineries are increasing. The oversupply is impacting profit margins and demand is simply not able to clear markets at this current level.