The report on the US labor market in October came out confidently strong, giving additional arguments to the Fed to raise interest rates at least to a neutral level. 250 thousand new jobs were created, which significantly exceeded the forecast of 190 thousand, the level of labor force participation rose to 62.9% against 62.7% a month earlier, the average workweek grew from 34.4 to 34.5 hours, the average hourly wage increased by 0.2 %, which is lower than the growth of 0.3% in September, but in annual terms, the growth was 3.1%.
The latter indicator is especially important because it allows you to predict expectations for inflation. The higher the wage growth, the higher the consumer demand, the higher the prices, the more confident the expectations at the Fed rate. The growth of 3.1% is the maximum for the last 10 years, but it will need confirmation in the coming months, since it is largely due to low rates a year ago. Without confirmation that wages are rising with acceleration, the threat of overheating of the US economy will remain just re-election rhetoric.
The dollar reacted to the release of growth report, but the movement was rather sluggish, since the overall the results coincided with forecasts, and besides, the attention of the markets was largely focused on the upcoming elections to the US Congress.
For Trump, there is a real risk of losing control of Congress, which can lead to serious turmoil in financial markets. Elections will be held on November 6, 435 seats in the House of Representatives and 25 seats in the Senate are at stake, polls indicate that the Democrats will receive an overweight of at least one vote. Democrats oppose Trump's tax reform and intend to cancel it, in case of their victory, the question of cancellation will be raised in the very near future. Trump has the right to veto any decision of the Congress, if it is adopted by less than two-thirds of the votes, and the Democrats' victory cannot provide them with such an advantage, but in any case, they can create a lot of problems for Trump.
Understanding that part of his decisions was unpopular, Trump partially won back, announced his readiness to hold talks with China, introduced relief for happy countries on Iranian sanctions, removed pressure from Turkey, but these efforts may not be enough to keep control of Congress. If the Democrats get a majority in both chambers, then a strong dollar decline is possible, since the trend to strengthen it was set just by Trump, tax reform and geopolitical decisions. In this case, Trump will lose the opportunity to expand tax reform, which will increase the likelihood of impeachment or at least reduce the likelihood of winning the next presidential election. The CFTC report, published on Friday, showed that the preponderance of the bulls began to decline, speculators are preparing for a possible reversal of the dollar.
Eurozone
For the euro today, important news is not expected, the Sentix group will publish an indicator of investor confidence, which is expected to show a decline after similar research from Ifo and Gfk. The euro looks uncertain, but will trade in the range of 1.1335 - 1.1455 in anticipation of news from the US.
Great Britain
For the pound, the start of the week promises to be quite rich. On Monday, the PMI Markit index on the service sector will be published, the expectations are negative, and Lloyd's business barometer published a little earlier indicates a likely fall.
On Friday, the first estimate of GDP growth rates in Q3 will be published, it will most likely be weak, which will lead to an increase in pressure on the pound by the end of the week.
As for Brexit, there are no events scheduled this week, however, the likelihood of another EU summit in mid-November is growing. On Sunday, there was news with reference to Theresa May that the agreement is already 95% ready, which is currently the main driver for the pound.
The currency GBP / USD on Monday will try to update the recent high of 1.3035, a general decrease in tension will push the pound up at least until the end of the week.
The material has been provided by InstaForex Company - www.instaforex.com