'BoE's officials looking at wage price inflation to dictate changes in policy' - David Rodríguez, DailyFX

   David
Rodríguez

PROFILE:
• Current Job:  Quantitative Strategist for DailyFX.com in New York.
• Career: Specialized in statistical studies in currency trading markets and algorithmic trading systems for the Managed Accounts Programs offered by FXCM.

View profile at FXstreet.com

David Rodríguez is a quantitative analyst for DailyFX.com, specializing in statistical studies in currency trading markets and algorithmic trading systems for the Managed Accounts Programs offered by parent company, FXCM.

He holds a degree in Economics from Williams College with heavy emphasis on quantitative methods and began trading financial markets in the tech boom and bust of 1999-2001. Since then, David's primary focus has shifted from equities to currency markets, but he continues to trade futures and futures options on a broad range of asset classes as well as currencies.

Do you see the Fed adjusting its monetary policy in any way, in the light of much better than expected NFP numbers for June?

This seems unlikely. In recent minutes, FOMC Minutes made clear that the Fed was likely to end its Quantitative Easing policies in October in light of improvements in the economy. Five consecutive months of 200k+ NFPs prints certainly points to a healthy recovery, but anemic wage growth remains a major concern and really limits speculation on the future of policy tightening and rate hikes.

When do you expect the first BoE MPC Committee members to start voting in favor of an interest rate hike? What could push them to do that?

Much like the Federal Reserve, the Bank of England’s officials are looking at wage price inflation as a key indicator to dictate changes in policy. Governor Carney has famously warned that the Bank might start raising rates before markets than anticipated, and interest rate futures are now pricing in high likelihood of a rate hike in the fourth quarter of this year. It’s entirely possible that we start see minority dissents for rate hikes before then, but I don’t think that would have a significant impact on rate outlook. More importantly, I find it difficult to believe that the Sterling can benefit from further speculation until we see strong upward surprises in UK economic data.

Experts talk about the finish of the USD/JPY rebound as the pair is back to July 2 levels around 101.70; what do you think?

I think talk of the end of the USDJPY rally is well-overdone. Until we break below year-to-date lows at ¥100.70, I remain constructive on the JPY-short trade. The reason is straightforward: record-low FX volatility and strong rallies in financial markets make the carry trade attractive. The issue is record-low interest rates will keep the USDJPY exchange rate compressed until the Fed puts the pedal to the metal and starts talking rate hikes.

Recent PMI data in Canada put the Canadian Dollar under pressure. Do you see further recoveries in the USD/CAD or do you think the current bearish trend will remain intact?

The trend is your friend until we start seeing a material reversal here. The disappointments in recent Ivey PMI figures are of some concern, but the currency has thus far been little-affected.

EUR/USD bounced at 1.3575, do you see further gains in the pair?

The Euro remains stuck in a tight trading range versus the US Dollar, and extremely low volatility suggests it will continue to remain so. The operative range remains $1.3575-$1.3700, and until we start seeing bigger moves out of financial markets I expect that to hold. Possible catalysts for such a spike could be almost anything, but with the Euro and Dollar I’d look first to the ECB and Federal Reserve