The clash between the US and North Korea continues. Last week, in Pyongyang, North Korea stated that they plan to test a missile, which, according to their calculations, may reach the US West Coast. This time the threat is significant, it refers directly to the US and not just its allies, this is why it is likely to expect the strengthening of Trump's aggressive rhetoric, and along with all that, increasing geopolitical risks in general. Nevertheless, if to ignore the above negative factors, the dollar seems to have good prospects for rising. On Friday, a market labour report was released. It turned out to be rather good. Unemployment decreased to 4.2%. Average hourly earnings also rose by 0.5%, and the average workweek remained unchanged, which indicates an increase in demand for labour; however, this demand is met by hiring new employees and not with an increase in work shifts, which signals the lack of economic overheating. It is worth noting that the share of economically active population also increased from 62.9% to 63.1%, which may signal more specifically about the interest of the unemployed to enter the labour market. Perhaps they are motivated by rising earnings. On Friday, these data considerably supported the dollar.
Today, the Dollar Index has been under correction, however the technical scenario remains the same, and the growth has the potential to continue. American indices also keep increasing. More specifically, the mark at 2550 points for SP500 has been already tested, now we are to expect a breakout of this level. American bonds are expectedly decreasing, and their yield is increasing.
This week's key news is retails sales and inflation statistics. Taking into account the labour market data, it is likely that inflation will increase and it will support the US dollar.
In general, trading is quite calm in the currency markets. It is also because there are no players from Canada and Japan, where they have bank holidays today. EUR/USD is consolidating in the sideways trend, below the 50-day moving average. USD/JPY is also in the sideways trend. GBP and EUR have been actively rising against JPY, taking advantage of the lack of Japanese players.
In the short term, the ruble has more chances to continue its local decrease against the dollar. On one hand, the signal for that is crude oil; on the other hand, it is also a considerable increase in the US dollar following the nine-month fall. In the oil market, oil production by US shale oil companies keeps rising. Moreover, according to forecasts by experts from 64 US-based companies dealing with oil exploration and production, on average they plan to increase their expenses by 49% in 2017, as opposed to the previous year. This means that active expansion will most likely continue and will negatively affect oil prices. The OPEC+ still acts here as counterbalance. Meanwhile, the dollar actively keeps recovering. This week, retail sales and inflation statistics may act as support for the currency. Within this week, the USD/RUB currency pair will remain in an ascending channel, however it is not unlikely for it to test the upper border at the 58.80-59 area. Support is at the 57.50 area.
Ivan Kapustyanskiy, equity analyst at Forex Optimum