Global risk appetite continued to push higher through yesterday’s session and the press higher that started in the Asian session. This continued through the European session with all major bourses in Europe posting gain, finally finishing up in the US with record highs posted once again across indices as the Dow smashed above 25,000 and the S&P extended above 2,700. Positive sentiment was helped by broadly better data across the world. In Europe, PMI data was firmer than expected as services and composite PMI readings were both above analysts’ predictions, while in the UK services PMI data was also firmer than expected. In the US the ADP report showed 250k vs 190k Jobs added to the economy through December, giving rise to hopes for a firmer NFP print today. In the world of currencies however the dollar struggled, the trade weighted USD index was down .5% from daily highs at one stage, only a rally overnight taking the greenback up from its lows.
EURUSD tested 3 years highs, coming in at a high of 1.2089 vs 1.2092 highs in August, while GBPUSD also looked to recover from Wednesday’s sell off, while gains were limited the pair did manage to recover back above 1.3500. EURGBP held below .8900 for most of the day, .8920 holding any real progression higher in the pair. USD best performance vs G10 was against the JPY, USDJPY is actually up over 1% this week vs a broader .5% decline in the USD index in the same time frame. JPY weakness stemming from advances in the Nikkei the last two days following a couple of holidays to welcome in the week. The Nikkei has continued it run higher overnight as has the broader risk on theme as most major Asian/pacific indices post gains, all this despite some weaker data points with Japanese PMI falling to 51.1 from 51.2, while Aussie trade data was also slightly weaker resulting in some AUD selling.
On to today and we have another active calendar. The primary focus in the morning session however will be on the release of Eurozone CPI inflation data, the headline figure is expected to drop to 1.4% from 1.5% year on year through December, while the core figure is set to rise to 1% from .09%. The surge higher in EURUSD has gone by without any reaction from the ECB just yet, however their primary concern for the Eurozone region is lagging inflation, an issue seen across the most of the western world. The constant surge higher in the value of the euro however will only serve to keep Eurozone inflation suppressed and this is where the ECB may voice concerns. While they are usually hesitant to comment directly on the value of the euro, EURUSD above 1.2000 and EURGBP pushing above .8900 will cause some concern. A weaker CPI reading may well see some euro selling and release some of the pressure, the euro however is relatively flat thus far today. EURGBP range still looking at .8920 down to .8850 area, while the larger range is .9000 down to .8760/30 area. EURUSD still capped by last year’s highs at 1.2091, NFP’s likely to be the catalyst for a move either side here. It looked like the market wanted to push above highs yesterday but failure to do so has resulted in EURUSD dropping back lower, 1.2000 provides first support.
There’s not too much from the UK today, Car registration data saw decline of -14.4% through December, GBP under some light selling this morning but nothing major. Primary focus in the afternoon will be stateside on the Non-Farm Payrolls, due to show 193k jobs added to the economy. However with yesterday 250k ADP print markets may be looking for something a little firmer and with that, there is some slight risk for the dollar should we see a print up under 200k. Overall however the headline figure will likely only be reactionary, the real meat in the release will be earning data, with average earning expected to remain at 2.5% growth. Anything weaker than that and the USD will likely face some selling, especially considering its struggled all week on far stronger data. Services data then follows up later in the afternoon with Non-Manufacturing ISM and factory orders and durable good figures all due with slight improvements expected.