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Short Description

Non-Farm Payrolls & Powell’s 2nd term...

Video Script

Hi everyone, welcome to my latest preview of the week ahead in forex and financial markets. 


This week we’ve got the ever-important non-farm payrolls on Friday - and it’s the first one since Jerome Powell was renominated as Fed Chair for another four years. The idea of Powell’s second term has created some volatility in forex and bond markets, so I’ll discuss that as well as previewing other highlights from this week’s economic calendar.


Over the last week US bond yields rose, which sent the dollar index to fresh 16-month highs, gold to 3-week lows and there were some jitters among tech stock investors. The jump in yields came for two main reasons - that Jerome Powell will stay as Federal Reserve Chair and because other Fed policymakers began talking up the chance of a faster pace of tapering and possible US rate hikes next year.   


The knee jerk reaction to assume more hawkish policy from Fed Chair Powell might seem a little confusing at first glance. Powell of course was Chair over the past two years that saw the most dovish policy ever unleashed by a central bank. And for that reason, the moves we’ve seen could start reversing. But for now, the prevailing logic is that Powell is just less dovish than the other suitor for the job - Leal Brainard - who has just become the Vice Chair of the Fed. And in fairness, Powell did raise rates under President Donald Trump, much to the public displeasure of the former president.


So what do we take away from all this for trading the markets? Well we can look straight to the forex market. EUR/USD dropped below 1.12 last week to its lowest in 16-months. Much of the dollar strength that we’ve seen over the past few months can be explained by markets expecting the Federal Reserve to raise rates faster than other central banks. I think what we can say is that the renomination of Powell and hawkish comments from other Fed speakers is just extra confirmation of this bullish dollar thesis.


I will just stop at this point to remind you to give this video a thumbs up by slamming the like button! Thanks very much!


Let's switch gears to this week’s economic calendar highlights. We do have two Q3 GDP reports that will concern commodity currencies from Australia and Canada. Both the Aussie dollar and the loonie have been experiencing weakness against the USD but last week the RBNZ raised rates in New Zealand, setting the precedent for the other major commodity-producers to follow. 


We also have preliminary manufacturing and services PMIs from the likes of China, Europe, the UK and US. Moderate increases are expected in most regions, which are all in expansion territory with only Chinese manufacturing flirting with contraction at the 50-level. If the numbers come as expected it points to strong growth heading into 2022 with few concerns about increasingly strict covid policies, especially in Europe.


Last but not least we have the November Non-farm payrolls report released on Friday December 3rd. As a reminder, last month saw a big bounce back from two disappointing reports with US jobs growth of over half a million. The consensus from economists is for similar job gains to continue as employers start hiring seasonal workers before the holidays.


Right thanks everyone, good luck trading this week and make sure to click on subscribe so you don’t miss the next episode of the week ahead.


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