Fed has limited time to explicitly hint a hike

In an interview I gave to FXStreet, we discussed the implications of the Non-Farm Payrolls report on a potential rate hike in September. We continued with discussing the yen, the yuan, oil and the upcoming market-moving meetings.

You can read the interview in its original publication or here below:

After the so-so US Employment report, do you think there is any chance that the Fed triggers the rate hike this month?

The chances for a rate hike in September are very low. The report not only showed a slightly disappointing gain in jobs after two strong months but also a setback in wages and in the average workweek. The Fed is naturally dovish, looking for excuses not to hike. In addition, Yellen and her colleagues would not like to trigger political criticism ahead of the elections in November. Unless we hear explicit words about a rate hike this week, we can call it off.

Apart from the Fed, which central bank meeting will carry the most attention of the markets in September?

The ECB’s upcoming meeting will carry attention as the inflation remains low in the euro-zone and this time, new forecasts are released. However, the meeting could result in minimal action and just more rhetoric calling governments to do more. A more interesting meeting comes from the BOJ in the same week as the Fed convenes. Even higher expectations could lead to elevated volatility, regardless of the decision that Kuroda and his colleagues take. Other central banks are unlikely to rock the boat.

What are the critical levels for the USDJPY on the short-term?

Dollar/yen jumped from the lows and settled on higher ground. The battle for 104 is not over, and it remains immediate resistance. The next line to watch is another round one: 105. 106.40 and 107.50 follow. On the downside,102.50, 101.70 1st 100.80 provide support. All these lines worked as support and resistance lines during the summer.

USDCNY is close to 6-year highs, do you think the pair will break out to new ones?

The leaders of the US and China agreed to refrain from competitive devaluation in the G20 Summit and agreed that there is no justification to a weaker yuan. With China’s exchange rate system being far from free, I believe that at least in the short term, we will see the yuan strengthen, thus USD/CNY slide. Perhaps after the US elections, we could see the yuan losing ground, with the Chinese authorities taking advantage of the “lame duck” session.

Do you expect any cuts on oil production in the upcoming OPEC meeting?

OPEC members were unable to agree on any production cut or freeze in recent years. They are deeply divided among themselves and the chances of agreeing with non-OPEC members such as Russia seem very low. The recent rumors about some kind of deal resemble those before the Doha Summit in April. The expectations served to prop up oil prices for a short time. Eventually, all key countries want to maintain their market share, or at least get it back to previous output levels (Iran, Libya).

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