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Last week, the US non-farm payrolls data were released with a surprising 287,000 jobs created in June – more than a 100,000 above market forecasts. However, the positive figure may not be strong enough to change the widely held view that the Fed is currently not expected to raise interest rates this year. This is due to recent uncertainties in both the US itself and the global economy.
The market remains highly skeptical about the chance of an interest rate hike this year from the world’s most powerful central bank. According to the data from CME’s Fed watch, the odds for a rate hike in the summer of 2016 are at nearly zero, and at only around 26% for the meeting in December. This is due to the fact that the consequences of Brexit are yet to show its potential for enormous devastation. As a result, the Fed appears cautious and highly focussed on tackling any headwinds from Brexit, and at the same time avoiding stirring of global financial markets with its actions.
We will get a closer look at the U.S economy after a series of earnings reports that are slated to be released in the next few day and weeks. This week, markets are looking for second quarter earnings from JPMorgan Chase & Co on Thursday, and then Citigroup Inc along with Wells Fargo on Friday.
European equities extended their gains on Monday as market optimism over global growth and possible stimulus measures in Japan cheered investor sentiment. The Stoxx Europe 600 Index was up 0.7%, led by the gains in German steelmaker ThyssenKrupp after it said it was in talks with Tata Steel regarding potential consolidation opportunities.
Market sources are also suggesting the possibility of further monetary and fiscal policy actions from the European Central Bank (ECB) with Brexit likely to have a significant negative impact on the economy in the coming weeks and months.
The Bank of England (BOE) will hold a meeting to decide on benchmark interest rates, on Thursday. Economists predict that the central bank will reduce the rates from 0.5% to 0.25%, as the BOE has previously stated that the UK economy has entered a period of uncertainty since the Brexit vote. The rate cut expectation from the BOE is likely to trigger a wave of rate cuts across central banks around the world.
This week, various Fed officials are scheduled to speak, with two out of the five speakers being voting members of the FOMC that votes on interest rates and other policy measures. These speeches are anticipated to provide investors further information about future monetary policy.
Fig. EURUSD D1 Technical Chart
The USD is on course to gain ground against the euro, leading the pair EURUSD to trade lower after failing at the resistance of 1.11879 formed last Tuesday. A smaller-than average reading of the RSI (14) implies that bears are dominating the market. Further declines to the firm support area around 1.09095 are expected. Shorts on EURUSD are encouraged by the red trend indicator that has appeared over the price chart.
Buy Digital Put Option from 1.10899 to 1.09984 valid until 20:00 July 11, 2016