Week in FX Americas – Does Friday's NFP Change the Landscape?

• Modest miss in US jobs
• Stronger U.S. economic momentum remains on track
• Jobs report is neither strong nor weak enough to shift expectations

It looks like it, it feels like it, and for the sake of forex investors everywhere, it seems the market is finally trying to price in the long-awaited USD rally. Currency and CFD (contract for difference) trading is on the rise as a result of the action; a variable that has been amiss since central banks handcuffed capital markets, and FX in particular, with loose monetary policies that served to promote contained currency range trading.

With rising U.S. front-end yields encouraging dealers to also back-up, both FX and asset volatility is set to increase. The dollar sits atop key levels across the majors; some at yearly highs supported by improved U.S. fundamentals and a less dovish Federal Reserve. Presently, the mighty dollar is also picking up against emerging currencies, and with weaker emerging market fundamentals, it’s leaving that currency segment rather exposed.

More Upbeat NFP Data

The nonfarm payrolls (NFP) July headline number rose +209k, a small miss from the expected +233k, but importantly, it was the sixth consecutive monthly gain north of that psychological +200k print (the private payrolls miss was a tad larger at +198k versus +230k). The unemployment rate backed up a tick to +6.2% because of a larger rise in the labor force than the employment level. Average hourly earnings were nearly flat, while the workweek held steady at 34.5 hours.

Despite the modest miss in the headline and the general disappointment in corporate earnings, the trend remains somewhat healthy, and it would suggest that stronger U.S. economic momentum remains on track. For the Fed, the numbers justify its current stance in indicating ongoing labor market slack, and the data supports maintaining its current interest rate policy. The July jobs report is neither strong nor weak enough to shift currency investors’ expectations on the timing of the Fed's first rate hike. It should probably leave the mighty buck on stable ground despite some slippage heading into the weekend.

The market will now shift its focus to the Jackson Hole Economic Symposium in late August to gauge the Fed's current thought process. By days’ end, investors should be in a position to better align their expectations on the pace of rate hikes for the foreseeable future.

What to Expect Next Week

Jobs data (Australia, New Zealand, and Canada) and central bank rate announcements from the Reserve Bank of Australia (RBA), European Central Bank (ECB), and the Bank of England (BoE) continue to dominate the fundamental landscape.

The RBA will kick-start the rate announcements off next Tuesday. The market does not expect any change, but the "long" carry-trade investors are wary of Governor Glenn Stevens' constant efforts to jawbone the AUD lower. Higher rates in the U.S. will eventually put this trade under more pressure, and on an outright basis, the AUD is battling it out with the USD at its two-month lows (AUD$0.9280).

Expect another unchanged monetary policy announcement from the BoE when its two-day Monetary Policy Committee meeting concludes next Thursday. For the U.K., its key economic data release should be July's service sector purchasing managers’ index on Tuesday.

The ECB is expected to remain on hold with rates and other policy action at its August 7 meeting. President Mario Draghi is likely to emphasize the long-term refinancing operation that will start in September, and the completion of the bank's asset-quality review in October. In respect to inflation, he is likely to downplay the Eurozone's recent drop to +0.4% in July from +0.5% in June, while highlighting lower energy prices and higher core inflation.