FX.co ★ Strengthening of the dollar has only a local character so far

The Unemployment data from the US published on Friday.

The Unemployment data from the U.S. published on Friday demonstrated the recovery of a strong dynamic growth in the number of new jobs. This could give a good reason for the Fed to return to the idea of another rate hike before the end of this year.

According to the provided data, the US economy received 209,000 new jobs against the consensus forecast of Bloomberg at 178,000 in July. Another important news is the upward revision for the month of June with a significant increase from 222,000 to 231,000.

On the wave of published data, the U.S. dollar garnered considerable support. In our opinion, this was primarily due to a strong oversold which was a good reason for closing a large number of short positions against it. Despite such strengthening of the dollar, it is too early to consider this move as a turn in the market. Until the market sees a resumption of inflation, it will be best for the dollar to consolidate against the major currencies. However, if the inflation started to increase, the continuation of correction is expected to strengthen a fairly oversold dollar in the currency markets.

Additionally, the American currency will gain more support from the positive content of the speech from US Federal Reserve Chairman J. Yellen in Jackson Hole, which is traditionally held in August. Usually at this forum, the leaders of the US central bank highlight some guidelines for their policy for the medium term including the positive speech from Yellen which in turn, would provide a turn of the dollar, locally.

Yet again, the inflation indicators stay at the current levels or even decline, no positive feedback from the head of the Central Bank will be able to support the dollar. In this case, it will resume the downward trend especially since the issue of the US debt will arise by September whereas, the next astronomical values have to be adjusted higher once again.

There will be is no significant economic data expected to come out for today but there will be speeches with comments from both Fed representatives Bullard and Kashkari.

Forecast of the day:

The EUR/USD pair is trading below the level of 1.1800 on the wave of profit taking. It is still likely to adjust to 1.1700-20 if it does not rise above the level of 1.1800. There is more pressure on the pair due to expectation for a third rate hike this year and skepticism that the ECB will be noticeably radical in its decision to eliminate incentive measures next year.

The GBP/USD pair is consolidating below 1.3060 and remains under pressure from two factors. On the one hand, the Bank of England will raise rates in the near future is a disappointment while a strong employment data from the U.S. increases the probability of a third Fed rate hike. On this wave, the pair may continue its decline to 1.2950.