GBP/USD Forecast August 1-5

GBP/USD[1] reversed directions last week and gained 100 points. The pair closed at 1.3122. This week’s key event is the official bank rate, with the BoE expected to lower rates to 0.25%. Here is an outlook on the major market-movers and an updated technical analysis for GBP/USD.

Preliminary GDP for Q2 posted a gain of 0.6%, edging above the estimate of 0.5%. This could be the calm before the storm, as analysts expect a weak third quarter due to Bexit. In the US, the Fed was cautiously optimistic but did not provide any hints regarding the timing of a rate hike. The greenback lost ground in response to a poor GDP report[2]: a gain of just 1.2%, well short of the estimate of 2.6%.

Updates:

GBP/USD graph with support and resistance lines on it. Click to enlarge:

GBPUSD_ Daily Chart Aug1-4.

  1. Manufacturing PMI: Monday, 8:30. The indicator dipped to 49.1 points in June, pointing to contraction in the manufacturing sector. No change is expected in the July release.
  2. Construction PMI: Monday, 8:30. The PMI dropped sharply in June, falling to 46.0 points, which was well below expectations. This marked the first decline in over three years. The downturn is expected to continue in the July release, with an estimate of 44.2 points.
  3. BRC Shop Price Index: Tuesday, 23:01. This consumer inflation index continues to decline, and dropped 2.0% in June. Will the index post another sharp decline in the July release?
  4. Services PMI: Wednesday, 8:30. Services PMI posted a sharp drop in June, falling to 47.4 points. This missed the estimate of 48.9 points. No change is expected in the upcoming release.
  5. BoE Inflation Report: Thursday, 11:00. This quarterly report details the BoE’s projections for inflation and economic conditions for the next two years. The upcoming report will be the first after the Brexit vote, and a negative tone could push the pound lower. BoE Governor Mark Carney will host a press conference after the release of the report.
  6. Official Bank Rate: Thursday. 11:00. The BoE is expected to lower the benchmark rate by a quarter point, to a historic low of 0.25%. The rate has been pegged at 0.50% since 2009, so a rate cut could push the pound to lower levels.
  7. Asset Purchase Facility: Thursday, 11:00. The BoE’s asset-purchase program has been pegged at 375 billion since 2012, and no change is expected in the upcoming decision.
  8. Halifax HPI: Friday, 7:30. This housing inflation indicator provides a snapshot of the level of activity in the housing sector. The indicator jumped to 1.3% in June, crushing the forecast of 0.4%. The estimate for the July report stands at -0.1%.

* All times are GMT

GBP/USD Technical Analysis

GBP/USD opened the week at 1.3121 and touched a low of 1.3053, testing support at 1.3064 (discussed last week[3]). The pair then reversed directions and climbed to a high of 1.3301 late in the week. GBP/USD was unable to consolidate at these levels and retracted, closing the week at 1.3222.

Live chart of GBP/USD:

Technical lines from top to bottom

We start with resistance at 1.3667. This line was a cushion back in March 2009.

1.3514 has held firm since late June.

1.3419 is next.

1.3276 was tested in resistance as the pair briefly pushed to the 1.33 level.

1.3142 has switched to a support role.

1.3064 is protecting the symbolic 1.30 level. It was tested in support last week.

1.2902 is next.

1.2778 is the pair’s lowest level since 1985. This is the final support level for now.

I am bearish on GBP/USD.

The BoE is expected to lower rates this week to 0.25%. Even though this move has been priced in, a rate cut will be a major event and could result in the pound losing ground.

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USD/JPY Forecast August 1-5

The Japanese yen posted its strongest gains since February, as USD/JPY[1] plunged 430 points. The pair closed the week just below the 102 level. There are seven events on this week’s schedule. Here is an outlook for the highlights of this week and an updated technical analysis for USD/JPY. 

The yen posted strong gains following the BoJ decision[2], in which the bank refrained from lowering rates or expanding its asset-purchase program. USD/JPY lost more ground after the soft GDP report[3], with the economy expanding just 1.2%, compared to the forecast of 2.6%.

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USD/JPY graph with support and resistance lines on it. Click to enlarge:

USDJPY_ Daily Chart Aug1-4.

  1. Final Manufacturing PMI: Monday, 2:00. The PMI has recorded four straight readings below the 50-point line, pointing to contraction in the manufacturing sector. The June reading came in at 48.1 points, within expectations. The estimate for the July reading stands at 49.0 points.
  2. Monetary Base: Monday, 23:50. The indicator showed little change in June, with a reading of 25.4%. This was short of the forecast of 26.3%. The markets are expecting a drop to 24.3% in the July release.
  3. 10-year Bond Auction: Tuesday, 3:45. 10-year bonds continue to post negative yields. In July, the yield came in at -0.24%, compared to -0.09% in the June auction.
  4. Consumer Confidence: Tuesday, 5:00. Japanese consumer confidence continues to point to strong pessimism. The indicator posted a weak reading of 41.8 points in June, above the forecast of 41.1 points. The estimate for the July release stands at 42.2 points.
  5. BoJ Monetary Policy Meeting Minutes: Tuesday, 23:50. Analysts will be combing through the BoJ minutes, looking for clues regarding future monetary moves by the Bank.
  6. Average Cash Earnings: Friday, 00:00. The indicator disappointed in May, posting a decline of 0.2% ,well below expectations. This was the first decline since June 2015. The markets are expecting a turnaround in the June report, with an estimate of 0.4%.
  7. Leading Indicators: Friday, 00:00. The indicator dipped to 100.00% in the May reading, very close to the forecast. Little change is expected in the June release.

* All times are GMT

USD/JPY Technical Analysis

USD/JPY opened the week at 105.39 and touched a high of 106.72. The pair then reversed directions and dropped to a low of 101.89, as support held firm at 101.51 (discussed last week[4]). The pair closed the week at 101.94.

Live chart of USD/JPY:

Technical lines from top to bottom:

With USD/JPY posting sharp losses, we begin at lower levels:

106.25 is a strong resistance line.

105.19 was a cushion in October 2014.

104.25 is next.

102.80 is an immediate resistance line.

101.51 is providing weak support.

99.98 is next.

98.95 has held in support since late June.

97.61 was last tested in November 2013. It is the final support level for now.

I remain bearish on USD/JPY 

The BoJ has shown yet again it has little monetary ammunition to bolster the struggling economy. At the same time, the Fed hasn’t provided any clues about a rate hike, so September could come and go without a rate hike.

Our latest podcast is titled Oil down, gold up and the upcoming Fed-fest[5]

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USD/CAD Forecast August 1-5

The Canadian dollar reversed directions last week and gained 120 points. USD/CAD[1] closed the week just above the 1.30 level. This week’s highlight is Employment Change. Here is an outlook on the major market-movers and an updated technical analysis for USD/CAD.

The Canadian economy is in trouble. GDP, released monthly, posted a sharp drop of 0.6%. This marked the third contraction in four months. In the US, the Fed was cautiously optimistic but did not provide any hints regarding the timing of a rate hike. The US dollar lost ground in response to a soft GDP report[2], which climbed just 1.2%, well short of the estimate of 2.6%.

USD/CAD daily graph with support and resistance lines on it. Click to enlarge:

USDCAD_ Daily Chart Aug1-4.

  1. RBC Manufacturing PMI: Tuesday, 13:30. The PMI continues to post readings slightly above the 50 line, pointing to slight expansion. The June reading came in at 51.8 points.
  2. Employment Change: Friday, 12:30. Employment Change is one of the most important indicators and an unexpected reading can have a strong impact on the movement of USD/CAD. The indicator disappointed in June, posting a negligible loss of 0.7 thousand. The markets are expecting a sharp turnaround in the June reading, with an estimate of 10.2 thousand. The Unemployment Rate is expected to edge higher, from 6.8% to 6.9%.
  3. Trade Balance: Friday, 12:30. Trade Balance is closely connected to currency demand. In May, the deficit widened to C$3.3 billion, well above the forecast of C$2.6 billion. The markets are expecting an improvement in June, with an estimate of a deficit of C$2.6 billion.
  4. Ivey PMI: Friday, 14:00. The indicator improved to 51.7 points in May, beating the forecast of 50.2 points. Little change is expected in the June release.

USD/CAD opened the week at 1.3136 and touched a high of 1.3253. Late in the week, the pair dipped to a low of 1.2997, as support held at 1.2990 (discussed last week[3]). The pair closed the week at 1.3010.

Live chart of USD/CAD:

Technical lines, from top to bottom

We begin with resistance at 1.3457.

1.3353 is next.

1.3219 was a cap in April.

1.3081 has switched to a resistance line following losses by USD/CAD.

1.2990 held firm as the pair briefly dropped below the 1.30 level.

1.2900 is the next support line.

1.2780 has provided support since late June.

1.2663 is the final support line for now.

I am bullish on USD/CAD

In the US, the GDP report was disappointing, but US numbers have been generally solid and some strong numbers will likely renew speculation about a rate hike.

Our latest podcast is titled Oil down, gold up and the upcoming Fed-fest[4]

Follow us on Sticher or on iTunes[5][6]

Further reading:

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Preview: Hot start to August: NFP, BOE and more

Contrary to popular belief, recent Augusts have not seen any vacation mode in markets. Just last summer, we have witnessed extreme moves and this was not a one-off. The first week of August 2016 is certainly promising. The Bank of England is expected to deliver stimulus after an initial post-Brexit delay. In addition, we have a full buildup to the Non-Farm Payrolls as well as a potential rate cut in Australia.

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Preview: Hot start to August: NFP, BOE and more

Contrary to popular belief, recent Augusts have not seen any vacation mode in markets. Just last summer, we have witnessed extreme moves and this was not a one-off. The first week of August 2016 is certainly promising. The Bank of England is expected to deliver stimulus after an initial post-Brexit delay. In addition, we have a full buildup to the Non-Farm Payrolls as well as a potential rate cut in Australia.

Video preview of the week of August 1-5

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AUD/USD Forecast August 1-5

AUD/USD rebounded last week, gaining 100 points. The pair closed the week at 0.7578. This week’s highlights are the RBA interest rate decision and Retail SalesHere is an outlook on the major market-movers and an updated technical analysis for AUD/USD.

Australian CPI rebounded with a gain of 0.4%[1], giving the pair a brief boost[2]. In the US, the Fed was cautiously optimistic but did not provide any hints regarding the timing of a rate hike. The greenback lost ground in response to a poor GDP report[3]: a gain of just 1.2%, well short of the estimate of 2.6%.

Updates:

AUD/USD graph with support and resistance lines on it. Click to enlarge:

AUDUSD_ Daily Chart Aug1-4.

  1. AIG Manufacturing Index: Sunday, 23:30. Throughout 2016, the index has remained above the 50-level, which separates contraction from expansion. In June, the indicator improved to 51.8 points.
  2. HIA New Home Sales: Monday, 1:00. HIA New Home Sales provides a snapshot of the level of activity in the housing sector. The indicator has looked weak, posting three declines in the past four months. Will we see an improvement in the June release?
  3. Chinese Manufacturing PMI: Monday, 1:00. The PMI has been stuck at the 50 line for the past four months, indicative of a stagnant manufacturing sector. No change is expected in the upcoming release.
  4. Building Approvals: Tuesday, 1:30. Building Approvals disappointed in May, posting a sharp decline of 5.2%. This was considerably lower than the forecast of -3.6%. The markets are expecting a strong turnaround in the June release, with an estimate of +0.9%.
  5. Trade Balance: Tuesday, 1:30. Trade Balance is closely linked to currency demand. The trade deficit of A$2.22 was much higher than estimated, as the forecast stood at A$1.72 billion. The estimate for the June release stands at the round number of A$2.00 billion.
  6. Cash Rate: Tuesday, 4:30. The RBA will set interest rates and release a rate statement. The markets are expecting a quarter point cut, from 1.75% to 1.50%. Whether the bank lowers rates or stays on the sidelines, we could see some movement from AUD/USD.
  7. Commodity Prices: Tuesday, 6:30. Commodity Prices continues to drop, although the declines have been less severe in recent months. The June reading came in at -9.9%, almost unchanged from a month earlier.
  8. AIG Services Index: Tuesday, 23:30. The index is pointing to muted movement in the services sectors, with two straight readings slightly above the 50-line. Will we see some improvement in the upcoming release?
  9. Retail Sales: Thursday, 1:30. Retail Sales is the primary gauge of consumer spending, and should be treated as a market-mover. The indicator has posted two straight gains of 0.2%. Little change is expected in the June reading.
  10. AIG Construction Index: Thursday, 23:30. The indicator jumped to 53.2 points in June, marking a 10-month high.  However, most of the releases in 2016 have been below the 50- level, which indicates contraction in the construction sector.
  11. RBA Monetary Policy Statement: Friday, 1:30. The week wraps up with the RBA statement, which is released every quarter. The markets will be looking for clues regarding the bank’s future monetary policy.

* All times are GMT

AUD/USD Technical Analysis

AUD/USD opened the week at 0.7473 and dropped to a low of 0.7416. The pair then reversed directions and climbed to a high of 0.7610 late in the week, testing resistance at 0.7597(discussed last week[4]). AUD/USD closed the week at 0.7578.

Live chart of AUD/USD:

Technical lines from top to bottom:

We begin with resistance at 0.7938.

0.7835 has provided resistance since April.

0.7692 is protecting the 0.77 line.

0.7597 was tested last week and is currently a weak resistance line

0.7513 was a cap in May and June

0.7438 is providing support

0.7334 was a cap in December 2015.

0.7192 is providing strong support.

0.7105 has been a cushion since the end of February. It is the final support level for now.

I am bearish on AUD/USD

The markets are expecting rate cut from the RBA. Although this is priced in, the magnitude of such a move could well push the Aussie lower. In the US, the GDP was disappointing, but some positive data will renew speculation about a rate hike.

Our latest podcast is titled Oil down, gold up and the upcoming Fed-fest[5]

Follow us on Sticher or on iTunes[6][7]

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NZD/USD Forecast August 1-5

The New Zealand dollar[1] was looking for a new direction. The upcoming week features key data for the RBNZ before its important decision. Here is an analysis of fundamentals and an updated technical analysis for NZD/USD.

Trade balance remained positive in New Zealand, albeit did not beat expectations with hitting 127 million. In the US, data was initially OK, but the terrible GDP report[2] weighed heavily on the greenback.

Updates:

NZD/USD daily graph with support and resistance lines on it. Click to enlarge:

NZDUSD August 1 5 2016 technical chart analysis

  1. Inflation Expectations: Tuesday, 3:00. With inflation figures released only once per quarter, this publication provides another view on the state of prices. In the last two quarters, inflation expectations stood on 1.6%, lower than numbers previously seen. The figure could further fall.
  2. GDT Price Index: Tuesday, during the European afternoon. The Global Dairy Trade Price Index provides a bi-weekly update on milk prices, New Zealand’s primary export. Prices remained flat last time.
  3. ANZ Commodity Prices: Wednesday, 1:00. Commodities are important for New Zealand. Prices jumped 3.7%, a leap in comparison to previous data.

NZD/USD Technical Analysis

Kiwi/dollar found support at 0.6940 (mentioned last week[3]). It then went up and up, hitting much higher levels.

Technical lines, from top to bottom:

The round number of 0.74 served as resistance and support back in 2015. 0.7305 is the high of 2016 so far.

0.7290 was the pre-Brexit peak and serves as high resistance. The next line is 0.7240 which capped the pair in July 2016.

0.7160 worked as support when the kiwi was trading on the much higher ground in 2014. 0.7050 was the peak in April 2015.

The round level of 0.70 is still important because of its roundness but it isn’t really strong. The low of 0.6940 allowed for a temporary bounce.

The round 0.69 level has switched positions to resistance. 0.6840 capped the pair during May 2016 and tops the range. 0.6720 is the low seen in May 2016 more than once providing the lower bound.

The round level of 0.67 that works nicely as support. Another line worth noting is 0.6640, which capped the pair in November.

I am bearish on NZD/USD

It seems that the RBNZ is determined to cut rates and the Fed is still on course for further rate hikes.

Our latest podcast is titled Oil down, gold up and the upcoming Fed-fest[4]

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Fib Matrix Forex Scalping Strategies | 2016-07-07 GBPJPY +6

GBPJPY +6 2016-07-07 | Orange 2 White (Using GBPUSD)

This is a GBPJPY trade using GBPUSD. If you have followed these scalping trades over the last year you will understand the importance of the relationships between each pair. Here we are shorting GBPJPY but are using GBPUSD as our entry guide. As you will see GBPJPY has moved up so sharply that the 1 min boxes are not in view.We are not at any specific resistance on the pair although the 1 min lanes show darker shades of orange indicating overbought state. If you look at the GBPUSD TimeLanes though you will see that it is in a classic extended reversal pattern. Kash used the GBPUSD as his que and made a quick 6 pips on Cable.

You can find more details about using forex price action to scalp using the Fib Matrix TimeLanes trading software, here

Previous recording Fib Matrix Forex Strategies | 2016-07-04 GBPUSD +8

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USD Looking South; The Pain Trade Has Started – Morgan Stanley

The US dollar was hit by the Fed[1] and then by GDP[2]. And it could go further south:

Here is their view, courtesy of eFXnews:

USD looking south: The Fed has little to gain by hiking rates early. Hence, we regard the recent rise in real US yields that has supported the 4% USD rally seen since May as unsustainable. Our long-held framework suggesting a combination of high global debt, capacity overhangs and resulting low returns on investment should keep deflationary pressures intact. The impact that this environment will have on financial markets via a flattened yield curve and subdued inflation expectations should further support our weaker USD view, even though there have been recent upside surprises in US economic data.

Lower US real yields: Over recent weeks markets have re-priced the front end of the US yield curve. For now, the Fed has no incentive to disagree with the market probability of a 50% chance of a 25bp rate hike by the end of this year. However, US economic surprises have probably peaked and falling oil prices may no longer be a net support for the US as it has become the globe’s biggest oil reserve holder. When oil prices declined in 2014/15, the consumer’s oil dividend ended up going into higher savings while oil sector investment fell. Our in-house indicators predict US domestic demand weakening from here. Starting with momentum:

Accordingly, USD should trade lower from here, and with markets positioned long in USD we expect that, initially, relative positioning and not relative fundamentals will drive markets.

Recent USD rise has been driven by a relative rise in yields

The FX trade: This leaves the question of which currencies to trade long when a decline in risk appetite is the most likely outcome. JPY, EUR and CHF are best positioned to rally. Unfortunately, it would be a pain trade for many.

Some investors thought JPY would weaken with the help of coordinated expansionary fiscal and monetary policies of Japan’s authorities. This trade has been called into question this week.

Some investors though the EUR would weaken,assuming that Brexit would weaken EMU economies by fuelling populism and increasing political uncertainties. However, EUR has remained stable. Domestic real money accounts have not developed an appetite for additional FX risk.

Consequently, EURUSD stayed above 1.09, with EUR-bearish positioning creating an ideal springboard for EUR to move significantly higher.

The stable EURCHF despite improved risk appetite suggests more CHF stability going forward, with Switzerland’s 10% current account surplus generating commercial CHF buying needs.

EUR positioning is moving towards short

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Forex Weekly Outlook August 1-5

US ISM Manufacturing PMI, ISM Non-Manufacturing PMI, Crude Oil Inventories, Australian and UK rate decision, Canadian and US employment data including the major US monthly employment report. These are the highlights of this week. Join us as we explore the market movers for the coming week.

Last week, the U.S. Bureau of Economic Analysis released its earliest GDP[1] report for the second quarter. GDP grew at a disappointing rate of 1.2% after a downwardly revised 0.8% growth in the first quarter. Economists expected a growth rate of 2.6% in the second quarter. The main cause for this sharp decline was an $8.1 billion drop in inventory investment subtracting 1.16 percentage points from GDP growth. Meanwhile, consumer spending remained robust growing at a 4.2% rate, the fastest since the fourth quarter of 2014. However, the inventory decline which weighed on GDP growth is expected to boost manufacturing output for the rest of the year. Will growth resume in the third quarter?

Let’s start,

  1. US ISM Manufacturing PMI: Monday, 14:00. U.S. economy’s manufacturing sector increased its activity in June, rising to 53.2 from 51.3 the previous month. The reading was above expectations of 51.3, indicating expansion. The employment index edged up to 50.4 from 49.2 while expected a reading of 49.0. New orders climbed to 57.0 from 55.7. The prices index declined to 60.5 from 63.5, while forecasted 63.5. Manufacturing activity is expected to decline to 53.1 this time.
  2. Australian rate decision: Tuesday, 4:30. The RBA board decided to leave the cash rate unchanged at 1.75% at its July meeting. Global economic growth remains below the average pace and Australia’s terms of trade are weaker than in previous years and growth is moderate due to a large decline in business investment. Labor market figures are mixed with some improvement. The central bank awaits further information before changing its assessment of the outlook for growth and inflation and adjusting its monetary policy. The RBA  is expected to cut rates to 1.50% in its August meeting.
  3. US ADP Non-Farm Employment Change: Wednesday, 12:15. U.S. private sector hired 172,000 workers in June beating market forecast for a gain of 158,000. The previous payroll gains were revised down to 168,000 from an originally reported 173,000 increase. The unemployment was expected to tick up to 4.8% compared to 4.7% recorded a month earlier. ADP report is expected to show a jobs gain of 171,000 in July.
  4. US ISM Non-Manufacturing PMI: Wednesday, 14:00. The services sector expanded more than anticipated in June rising to 56.5 to a seven-month high, following 52.9 posted in the prior month. Economists expected a reading of 53.3. US services sector is expected to remain in expansion at 56 this time.
  5. US Crude Oil Inventories: Wednesday, 14:00. U.S. crude inventories edged up 1.7 million barrels last week reaching a crude inventory of 521.1 million barrels. The inventory remains at historically high levels for this time of year. Despite the rise, crude inventories remain within the five-year range.
  6. UK Rate decision: Thursday, 11:00. The Bank of England kept interest rates on hold at its first meeting after the Brexit vote. However, the central bank left the door open for a rate cut in August to prevent recession after June’s referendum result has clouded the outlook for the British economy. The economic uncertainty is likely to weigh on growth and may drag Britain back into a recession. For this reason the BoE prefers to act in advance of a downturn, rather than after one has begun. The Bank of England is expected to cut rates to 0.25% in August.
  7. Mark Carney speaks: Thursday, 11:30. Mark Carney, Governor of the Bank of England will speak in London about the Inflation Report. After the Brexit vote Carney stepped in to stem the Brexit panic. His main challenges are to prevent a recession, boost entrepreneurship and make the British economy work for everyone. Mr. Carney also said that the bank was piloting a digital-currency project in order to better defend against crises such as Brexit, financial crimes, encourage honest competition, foster innovation and financial inclusion and boost growth. Market volatility is expected.
  8. US Unemployment Claims: Thursday, 12:30. The number of Americans filing initial claims for unemployment benefits increased more than expected last week, rising 266,000 following 252,000 claims in the previous week. However, the underlying trend continues to show a robust labor market. Economists forecast a rise of 261,000. Claims remain below 300,000 for 73 consecutive weeks, the longest stretch since 1973. The four-week moving average of claims declined by 1,000 to 256,500 last week, the lowest level since April. The number of new claims is expected to reach 265,000 this week.
  9. Canadian Employment data: Friday, 12:30. Canadian labor shed 700 jobs as gains in the services sector were offset by declines in factory and construction work. The employment data suggests the Canadian economy is headed for a second-quarter contraction of up to 2%. The unemployment rate fell to 6.8% from 6.9 % in the previous month. The drop was largely due to the lower participation rate of 65.5% compared to 65.7 in the month before. The employment market is expected to gain 10,200 jobs, hwuile the unemployment rate is predicted to rise to 6.9% in July.
  10. US Non-Farm Employment Change and Unemployment rate: Friday, 12:30. US employment market surprised in June with a positive payroll growth of 287,000 compared to an 11,000 gain posted in the previous month. Economists anticipated a gobs gain of 175,000. Meanwhile, the unemployment rate increased to 4.9% as more people entered the labor force. However, wages increased less than expected, as the hourly earnings increased by 0.1% from a month earlier. The pace of hiring remained strong but was moderated by weaker profits and overseas developments such as Britain’s vote to leave the European Union. The US employment market is expected to expand by 180,000 new jobs while the unemployment rate is expected to decline to 4.8%.

That’s it for the major events this week. Stay tuned for coverage on specific currencies

*All times are GMT.

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