Open EUR/USD positions according to the released data on the US employment.

If you give an extra dollar to an American, be sure he/she will spend it on foreign goods. The US foreign trade deficit was $55.5 billion in October, the widest for a decade. The reasons are the dollar revaluation, a decline in foreign demand for the U.S. products, and higher demand of the Americans for foreign products. The US exports to China are worth $1 billion less, of $102.5 billion; Chinese imports are $35 billion worth more, as much as $447 billion. It seems that the fiscal stimulus, followed by an increase in the U.S. economy growth, higher demand and the U.S. dollar strengthening outweigh all the tariffs, imposed by Washington. If it is so, Donald Trump and his team may require impossible things from China, which will eventually start a new round of the U.S.-China trade war. After all, now the deescalation is in fashion.

Dynamics of the US trade balance

Source: Bloomberg.

The pleasantries between the presidents of the U.S. and China, expressed the confidence in the agreement reached, got investors to forget about the trade battle for a while and focus on the Fed monetary policy. Currently the derivative market suggests the odds on retaining the current interest rate in 2019 as of 34%, the chance of one more Fed tightening is 36%, the probability of four rate hikes is not more than 4%. It would be surprising if the situation was different amid the dovish rhetoric of the FOMC members.

Atlanta Fed President Raphael Bostic says the Fed should be cautious, Dallas Fed president Robert Kaplan suggests it be patient, and the president of New York Federal Reserve John Williams speaks about soft economic landing. Allegedly, the Fed, main challenge is to ease the effect of slower GDP growth after reaching the peak in 2018.

Dynamics of odds on Fed rate changes in 2019

SourceFinancial Times

However, Jerome Powell, ahead the report on the US employment, emphasizes its strength; and the unexpected positive form PMI calls into question the idea of a decline in the US economy growth in the fourth quarter. The contradictions between the FOMC plenipotentiaries, followed by the derivative market output and the US strong macroeconomic statistics get the banks suggest totally controversial forecasts. JP Morgan, Goldman Sachs, Barclays, BofA Merrill Linch still believe in four (!) Fed tightenings in 2019. Morgan Stanley, Citigroup and Societe Generale expect two more hikes of the Fed rate.

If the Fed policy is said to be gradual and dependent on incoming data, then the strong U.S. employment data for November should increase the chances of 2 or 3 more fed’s rate hikes in 2019. On the other hand, investors are getting more and more confident in a decline in the U.S. economy growth; therefore the report on strong U.S. employment will encourage big traders to sell the dollar, while everybody else is willing to buy it. With this regard, only poor statistics on non-farm payrolls, unemployment and U.S. wages and salaries growth will encourage traders to buy EURUSD at the breakouts of the resistances at 1.1425 and 1.1445. Positive data are likely to get the pair to ride a roller coaster.

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Price chart of EURUSD in real time mode

Will Dollar Knock Against US Employment

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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