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Research Market strategy
by Swissquote Analysts
Daily Market Brief

Strong data ignites dollar rally

USD buoyed amid upside surprise in growth data

By Arnaud Masset

The US dollar received a much needed fresh boost yesterday amid the release of better-than-expected data from the world’s largest economy. Firstly, the second print on the second quarter GDP was revised to 3%q/q (annualised) from 2.6% first estimate amid a substantial upside revision to customer spending and stronger business investment. Personal consumption edged up to 3.3%q/q (annualised) from 3%.

In the jobs market, the employment report released by ADP saw a sharp rise in payrolls in August. Us companies added 237,000 jobs in August (versus 189,000 estimated), while previous month’s reading was upwardly revised to 201,000 from 178,000. It does bode well for Friday’s NFPs!

The greenback extended gains against all G10 currencies yesterday. The worst performer was the New Zealand dollar that fell 1.35% with NZD/USD on its way to test its 200dma that currently stands at $0.7130. The Canadian dollar also suffered a small sell-off with USD/CAD climbing as high as 1.2663.

The show will go on today as a fresh batch of key data is due for release. Personal income and spending, which are both expected to have improved in July (+0.3%m/m and +0.4%m/m respectively) will be published this afternoon. Then the Fed’s favourite measure of inflation, core personal consumption expenditures, should have eased further in July as economists expect a reading of 1.4%y/y. Finally, July’s NFPs (180k exp and 205k prior), together with the complete jobs report, will be published on Friday.

The mood is slowly starting to shift in favour of the USD, finally. Therefore it is reasonable to expect the greenback to extend gains rapidly, especially should the US economy continue to surprise investors in a good way. After tumbling more 1.50% yesterday, EUR/USD takes a breather at around 1.1890. Even though we maintain our bearish on the pair, a negative surprise in data this afternoon could nip the USD recovery in the bud. Indeed, investors will remain highly sensitive to hard data ahead of the next FOMC meeting.

Hurricane Harvey may impact crude oil prices

By Yann Quelenn

The U.S Energy Department has released US inventories data which shows a decline of 5.932 million barrels during the week ending August 25. It is the ninth consecutive weeks of decline and crude oil has lost 1% and is now challenging its 6-week low.

The tropical storm Harvey is ravaging Houston and some US refineries out there are now closed temporarily. Yet, markets are clearly not fearing any potential shortages within the short-term. Indeed, Crude oil is most of the time very easy to replace. This is why we think that any shortage longer than a week or ten day will drive crude oil prices higher. For the time being, this natural disaster is not particularly weighing on prices.

The trend in the US rig count is bearish due to sustainable low prices. Now markets will start pricing in the next OPEC meeting late November. We do not consider that any production cut will be applied. The market share war will continue and no relief to the US refinery industry are on the roadmap.

Anyway, we keep on believing that the upside pressures on oil are likely. In particular, at the moment, there is a seasonal effect that is back. In September the demand for crude oil is likely to increase as the summer season is over and overproducing oil is definitely not a viable long-term project.

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