Week Ahead: Will the NFP data surprise us again?

[vc_row][vc_column][vc_column_text]This week, the value of global stocks decreased as investors showed concern about the increasing number of COVID-19 cases in the US. While most of the states have recorded this trend, the most affected areas are Texas, California, and Arizona. Indeed, the situation is so critical that Apple has announced the closure of some stores while Disney is yet to reopen its California theme park. What’s more, New York has indicated that visitors from hot spots within the country have to self-quarantine for 14 days.

The US Dollar has benefited from this situation as businesses and investors considered it to be the only safe haven. The value of gold has also increased to reach its peak over the past 7 years. On the other hand, crude oil prices have dropped. At the same time, the Mexican central bank reduced interest rates by 0.25% while the Turkish and New Zealand central banks have not made any changes.

Gold (XAU/USD)

The Gold price rally observed in this week resulted from the increase of COVID-19 cases in numerous countries including South Africa, Japan, the United States, and Germany. Investors are of the opinion that the rising coronavirus cases will trigger more interventions by the Federal Reserve as well as other central banks. However, central banks are finding it challenging to release more stimulus packages since they have already executed some costly interventions. For instance, the Fed introduced an open-ended QE (Quantitative Easing) program that yielded close to $3 trillion.

The Fed’s balance sheet has reached a record high of over $7 trillion. As the current health crisis continues, there is an increasing possibility of the U.S. to record negative interest rates. In the coming week, the focus will be on the progress of the coronavirus pandemic as well as the relevant economic data.

Japanese Yen (USDJPY)

This week, the Japanese Yen was unsteady as investors on the country’s weak manufacturing PMI numbers. The increasing number of coronavirus cases in the country, as well as Shinzo Abe’s declining ratings, were a concern for investors. Next week, there will be influential economic data releases. For instance, on Tuesday, the May employment data will be out. Based on the presented predictions, the unemployment rate in the country will increase from 2.6% to 2.7%while the jobs to applications ratio is likely to rise to 1.33.

Additionally, the Bank of Japan will release its Q2 manufacturing index on Wednesday. Analysts have predicted that the data may be disappointing since the economy was on lockdown for the better part of its Q2. Based on the predictions, the large manufacturers index and large non-manufacturers index will fall to -31 and -18 respectively. The position of the large manufacturers index is crucial because Japan is largely a manufacturing economy.

US dollar index (DXY)

Risk aversion led to the US dollar rising against other major currencies. Next week, similar to the situation with gold, the movement of this currency will largely depend on the state of the current pandemic in the US and other parts of the world. Major economic data will also influence the value of the US dollar. One of the influential data is the June report that the Labor Department will release on Thursday next week.

Based on the projections made by analysts, the unemployment rate will decrease from 13.3% to 12.2%. Moreover, the economy is likely to create over 3 million jobs in June. Besides, according to this forecast, the average hourly earnings will decease to 34.5 while the manufacturing payrolls will fall by 440k. The additional US data that investors should look out for are the Conference Board’s consumer confidence, pending home sales, and the ISM manufacturing PMI.

Crude Oil

In the preceding weeks, the price of crude oil has risen steadily. However, its status has changed due to concerns over a second wave of coronavirus and increased inventories in the US. Rising cases of COVID-19 may result in heightened stay-at-home directives; an aspect that will further lessen the demand for crude oil. At the same time, numbers released by the Energy Information Administration and American Petroleum Institute shows an increase of inventories over the course of this week. In the coming week, the focus will be on the inventories’ growth trend.

Euro (EURUSD)

This week, the investors’ focus was on the US Dollar; an aspect that caused the Euro to par back some of its previous gains. This happened even after the release of the positive manufacturing and services PMI data. The numbers, which emerged on Tuesday, indicated that business activities were improving as states lessened the lockdown measures. Furthermore, the currency’s value reduced after the United States disclosed its plans to enact taxes on products worth over $3.1 billion.

Similar to the US Dollar, the coronavirus pandemic is a major driver of this currency. The Euro will also react to crucial economic data expected from the region in the coming week. On Monday, there will be preliminary CPI numbers and consumer confidence from Germany. What’s more, the preliminary CPI numbers from the Eurozone and final PMI data from Markit will be released on Tuesday and Wednesday respectively. The unemployment rate and PPI are also crucial numbers to look out for.

British Pound (GBPUSD)

This week, risk aversion resulted in the decline of the Sterling Pound. Boris Johnson’s declaration to reopen the economy also contributed to this decline. Next week, all eyes will be on Brexit’s progress as the deadline to request an extension expires on Tuesday. Other crucial numbers to look out for include PMIs, Q1 GDP, and mortgage applications & approvals.

Silver (XAGUSD)

The positive manufacturing and services numbers released by Markit caused the price of Silver to rise at the beginning of the week. Indeed, it reached a weekly peak of $18.05. As the week progressed, the investors’ concerns about the stability of the global economy triggered a decline in the price of this precious metal. Next week, its value will be influenced by the coronavirus issue as well as the relevant economic data.

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