The USD shrugged off some weaker than expected NFP figures which saw 261k jobs added to the economy vs 313k expected. The dollar faced some initial selling right after the release, especially as wage growth figures also disappointed to the downside but given the impact from hurricanes and other seasonal factors Friday’s figures where always expected to be somewhat loose. We did suggest markets would likely pay greater attention to the ISM Non-manufacturing print and factory orders instead and this is exactly what happened. The services data posted 60.1 vs 58.5 expected, while factory orders were up 1.4% vs 1.2% expected and this was enough to lift the USD out of the red and turn it positive for the day. Friday also saw GBP trying to claw back some of the lost ground from Thursday’s dovish hike from BOE, with EURGBP dropping back below .8900, while GBPUSD looks to press back above 1.3100 even in the face of the broadly firmer USD. The pound was helped by some better than expected service PMI data released Friday morning and has held firm since.
The euro has yet to show much signs of recovery since it dropped following the ECB’s open ended QE program which left the market underwhelmed, but on Friday evening the ECB’s Coeure highlighted that the exchange rate was not a policy target of the ECB and that gradual normalisation would eventually see rebalancing in portfolios into euro denominated assets which will eventually support the euro. General risk appetite continues to find itself well supported. We saw record closes across US bourses which were helped higher by some better earnings reports, while over the weekend focus was on Trump’s trip across the Far East. Needless to say most of the world’s attention will be on how he address tensions with North Korea, while from the market side of things and comments on trade will also be closely watched.
Monday is usually a day for market watching and seeing what themes remain/develop across major currencies and sadly for the euro, despite better than expected German factory orders, the single currency is off to a weak start. Weaker than expected PMI data from France and Germany weighing on the euro thus far, despite the regions composite PMI coming in slightly higher than expected. The fact is now that we can expected easing via asset purchases and ultra-low interest rates until next September and beyond, this should serve to keep the value of the euro somewhat subdued but with each and every major release from the region, markets will be trying to assess what it means for the ECB’s easing schedule. With that in mind we’ll be closely watching comments from the ECB’s Mario Draghi who speaks in Frankfurt tomorrow. EURGBP post BOE highs on Thursday around .8932/38 provide first resistance to any move higher, while support has a firm base now between .8735/72 area. A break below there and we open up the lower range for EURGBP between .8300 and .8700. EURUSD struggling to find any footing and downside continues to be our bias. Initial support at 1.1574 marks the post ECB lows, a break below there should see a move back towards 1.1424/35 area where EURUSD has historic support/resistance and should favour a light bounce.
There’s not really too much from the UK or the US in terms of data releases in the next 48 hours so headlines will more than likely be of greater interest. There are several Fed speakers due across the wires but markets are now pricing in almost a 90% chance of a FOMC rate hike in December and as such anything on the weak side of expectations poses a greater threat the USD. Brexit headlines will be focus for GBP, some comments over the weekend from Mark Carney suggested that a bad Brexit deal and above target inflation could leave the BOE exposed and unable to cut rates to ease pressures. Needless to say there was the usual accusations of scare mongering but the reality for most is, the longer no deal appears apparent, the more vulnerable the UK economy is. GBPUSD finds support towards 1.3035/60 area, but is looking to press back towards its mid-range for October around 1.3200.