Event risk this past week boasted a significant probability of volatility and potentially a breakout from the dollar’s recent congestion. Looking at the week ahead, the potential for a major greenback move are doubled with a number of first tier indicators anchored by the market’s top billed non-farm payrolls release. Looking at this end-of-the-week gauge first, the labor report will have a greater influence on the fundamental outlook on the US economy (and its currency) than usual. This time around, the leading economic indicator will be measured against last week’s strong 2Q GDP revision and the hawkish comments from the FOMC minutes.
We have been short NZD/USD since last July and I expect the kiwi to remain weak going forward on speculation the Reserve Bank of New Zealand could have to cut interest rates faster than traders had previously expected to prevent the country from falling into a recession.
Spending most of the week between 1.4660 and 1.48, the EURUSD is likely to break from the tight consolidation next week.
Dollar advance may be cut short by NFPs. Central bank activity will hold the market over until payroll Friday.
Interest rate expectations will play a pivotal role in the overall health of the carry trade next week as four G10 central banks are scheduled to deliver monetary policy decisions. It’s this high level of event risk on the horizon that shines a bright spotlight on the precarious position the popular Forex strategy.
Currency Strategist