Into Crunch Time


1 FOR 1 - So one down, two to go. That's what many out there are thinking with respect to next week's Fed decision where the central bank is overwhelmingly expected to raise rates. Wednesday's US ADP print was expected to come in at 185k and the actual number that came out was a whopping 298k! And not only does this reinforce prospects for a rate hike next week, it also send a message the Fed really might stick to its guidance of 3 hikes, if not 4 this year. Today, we get US initial jobless claims, which really should only help and not hurt the case for higher rates. Remember, last week, jobless claims came in at an over four decade low. So even if it's a miss, this won't do anything to deter the Fed. Of course, the third piece of data is the most important, and that comes Friday with the monthly jobs report. Here, the market will probably be more interested to see if hourly earnings match or exceed expectation. If the NFP number is solid and hourly earnings don't disappoint, the market will move more in line with the Fed.

ANOTHER RUN - What does this mean? It probably means that as much as the market would like to avoid seeing another big US Dollar run, that's exactly what we'll get, barring any concerns about the strength of the US Dollar out from the US administration. But even then, it's going to be hard to fight against favorable yield differentials and Trump policies of tax reform and fiscal spending that are also US Dollar supportive. Up until now, the Euro has done a fabulous job avoiding a breakdown below 1.0500, with that break to likely open a test of parity. But if tomorrow's data comes in strong, it could very well be that catalyst that opens an acceleration to the downside, with the US Dollar up pretty much across the board. Why do I say pretty much? Well, I still believe there will be a desire for the market to move into the Yen despite another big US Dollar push. The reason for this has everything to do with the fact that a path of higher rates will make equity markets less attractive and open a rotation that inspires safe haven bids. 

The US Dollar looks like it may have another big run yet. Via @joelkruger

STRATEGY - As far as positions go, EURAUD is running well, while the SPX short needs to see a close back below 2300 to really get going back into my favor. I have also talked about needing to see an initial daily close below 2350 to get the momentum going in the very smallest of ways. That may continue to take some time and that's ok. Otherwise, I am keeping my eye on USDJPY to fade, EURGBP to fade and GOLD to buy. Of course, other opportunities may present as things unfold, but those are the markets that are most interesting right now and could offer something quite soon. GBPUSD is another one I will continue to look to buy on overextended dips. I wrote about this on Wednesday and believe there will be a great trade there at some point. Today is also the ECB decision which makes everything that much more interesting, though I would be surprised if the event actually does anything crazy to the market this time round given all of the other distractions.  

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