Image Source: Unsplash
 

It’s the first week of the second half of 2023 and of the third quarter, and there’s already plenty to look forward to:

Monday, July 3

• AUD: Australia June inflation; manufacturing PMI (final)
• CNH: China June Caixin manufacturing PMI
• EUR: Eurozone June manufacturing PMI (final); Germany May trade balance
• GBP: UK June manufacturing PMI (final)
• USD: US June ISM manufacturing

Tuesday, July 4

• AUD: Reserve Bank of Australia rate decision
• EUR: Eurozone April retail sales; Germany April factory orders
• US markets closed for Independence Day

Wednesday, July 5

• AUD: Australia June services PMI (final)
• CNH: China Caixin services and composite PMIs
• EUR: Eurozone May PPI, services PMI (final)
• GBP: UK June services PMI (final)
• USD: FOMC minutes; speech by New York Fed President John Williams

Thursday, July 6

• AUD: Australia May external trade
• EUR: Eurozone May retail sales; Germany May factory orders
• USD: US weekly initial jobless claims; speech by Dallas Fed President Lorie Logan

Friday, July 7

• CNH: China June forex reserves
• EUR: Speech by ECB President Christine Lagarde; Germany May industrial production
• GBP: Speech by BOE policymaker Catherine Mann
• USD: US June nonfarm payrolls
• CAD: Canada June unemployment rate

The first Friday of the month almost always brings with it the monthly non-farm payrolls report, a defining economic risk event for the US.

While inflation data may currently be trumping the employment numbers in importance, there is always widespread excitement about the jobs release.
What are markets expecting for this Friday’s US jobs report?

• Change in Nonfarm Payrolls: 225,000 (if so, 225k would be lowest number of new jobs added since December 2019)
• Unemployment rate: 3.6% (lower than May’s 3.7%)
• Average hourly earnings: 4.2% higher compared to June 2023 (lower than May’s 4.3% year-on-year number)
   

How might the Fed react?

This time around, the Fed remains very much data dependent with recent data surprising to the upside and crucially also cementing the two rate hikes which the new updated dot plots implied at the June FOMC meeting.

As things stand, markets are pricing in an 85% chance of a Fed rate hike later this month, with a 1-in-3 chance accorded to another rate hike by November.

How might markets react?

A solid employment report, that reveals a still-tight jobs market that’s allied to sticky inflation, should support the US dollar.

However, we are nearing the end of the tightening cycle with markets still forecasting a lot more work to be done in other G10 countries, notably the UK and Europe. Hence any lift in the greenback may be relatively limited.

Dollar bears would be eager to pounce on further signs that peak US rates is close at hand, especially if we see a softer-than-expected US jobs report.

Key levels

A break below the 50-day simple moving average (SMA) may drag this USD Index closer to the 102 psychologically-important level mark.

However, a break above its 100-day counterpart may invite bulls to have the USDInd revisit last Friday’s high around 103.60.

More By This Author: