eToro Weekly Performance Report 7/28 - 8/3/2014

Weekly eToro Market Review 7/28 - 8/3/14

Volatility around the Corner

In the past few weeks, despite escalating tensions in Ukraine over the unfortunate plane incident and tensions in the Middle east, volatility has been rather moderate as investors wait with bated breath. “What are investors waiting for?” one might ask. The answer is for this week’s events, as data releases from the U.S are set to be pivotal for sentiment in Forex, on Wall Street and in precious metals. On the horizon are three major releases, namely the FOMC rate decision, the U.S. GDP for Q2 and, of course, the big event, U.S. Non-farm payrolls. The combination of the three within the span of a single week could easily establish this week as a pivotal one and determine whether Dollar appetite intensifies, Wall Street continues to crawl higher and Gold slides lower again.

Starting with GDP

One cannot stress enough how important this Tuesday’s GDP release will be for Dollar sentiment. The last annualized GDP release in Q1 had caught investors by surprise with a contraction in growth, hardly what Dollar bulls were expecting. Investors reacted by raising expectations for growth for the rest of the year and with an estimation that growth from Q2 onward would compensate for the sharp drop in GDP. Dollar appetite remained intact, Wall Street held its own levels and Gold stabilized. Now, as the Q2 GDP figures draw closer, the rebound in growth theory must prove itself with strong GDP growth or else the Fed’s rate hike deadline might be pushed back further and the Dollar could quickly lose its strength while Wall Street could be hit. Thus, for the Dollar’s bullish trend to continue and for Wall Street to maintain its gains, a strong GDP figure will be critical.

Fed Comes Next

Only a few hours after the all but critical GDP figure comes another important market moving release and that is the Fed’s rate decision. No change in rates are expected but the statement which follows and the trajectory for ending Quantitative Easing will be critical for sentiment. Core CPI last week had cooled to 1.9% and if the GDP figures released earlier in the day remain downbeat the Fed could release a rather dovish statement that could hit the Dollar and lift Wall Street (lower rates favor Wall Street). However, if the Fed remains optimistic and remains firm in its intention to end Quantitative Easing by this October and shows it is working up to raising rates next year, that could be a strong catalyst for Dollar demand and hit Gold .

The Grand Finale, Non-farms Payrolls

The Non-farms is perhaps the most critical data for the week. One of the reasons that Dollar demand remained intact even when other sets of data from the U.S. disappointed was the robust strength of the U.S. job market and, more specifically, Non-farm Payrolls. True, the two sets of data have to be positive for the Dollar to maintain its momentum, but only a strong NFP of above 230K could seal the week as an upbeat Dollar week.

Down to Business

For the Dollar to maintain its bullish bias it has to go three for three for a full on bullish knockout; that means GDP has to rebound strongly above 2.9% annualized, the Fed has to be upbeat and ready to terminate QE by October and Non-farm payrolls has to be above 230K. Otherwise, investors that have benefited from Dollar strength mainly against the Euro could move to profit taking.

On the Plate

Japanese Unemployment and Retail (Monday) – An upbeat result in both parameters could support the JPY while a disappointment could support mainly the USD/JPY and push it higher.

U.S. Consumer Confidence (Tuesday) – This will primarily be important for Wall Street; rising confidence among American consumers, who collectively are a main driver of growth for companies, could lift appetite for the S&P500 and the Dow ahead of the big events of the week.

U.S. ADP employment (Wednesday) – This figure will shed light on the dynamics of the U.S. job market ahead of Friday’s non-farms but will take a secondary role to GDP and FOMC.

U.S. GDP (Wednesday) – An annualized growth of 2.9% or higher will be a critical in the Dollar’s bullish buildup.

Fed Rate Decision (Wednesday)- If the Fed is upbeat it will benefit the Dollar while a downbeat Fed, reluctant to raise rates, will benefit Wall Street but mainly lift Gold.

E.U. and German Unemployment (Thursday) - Investors hope for Germany’s unemployment rate to remain unchanged at 6.7% and the E.U.’s unemployment rate at 11.6%; if the numbers in either rise, that could hit the Euro.

Non-farm Payrolls (Friday) – The grand finale of the week; investors will want to see the payrolls figure at or above 230K for them to feel comfortable with going fully on board with the Dollar’s bullish trends against a wide range of currencies.

Article Written By: Adam Slachevsky