Non-Farm payrolls Friday, what a day to be alive. So much is built up into US labour market figures that much of the day is spent in anticipation of the release with very little happening before the announcement, then there is a 30 minute flurry of activity before market settles back down again and looks into the weekend.
Quite often what is expected to be an exciting day in the markets turns into a drab affair. There is some difference this Friday however first up, markets are looking for jobs data to back up a hawkish FOMC this week, expectations for 190k far exceed last month’s dismal 90k and if that shocking reading proves to just be a blip on the radar then there is likely scope for the USD to take a run higher into the weekend and extend that rally beyond, through much of May. However should we see another weak jobs print then the USD will find itself into considerable pressure, especially against the likes of GBP and EUR as central bank policy diverge with US hike expectations likely narrowing on a weak print, while markets are still looking to the ECB to end QE, and the BOE to raise rates.
Once that is out of the way this afternoon we have key risk into the weekend with the second round of the French elections and while Macron appears to have a strangle hold on this outcome (all polls suggesting over a 60% majority) Le Pen is not giving up without a fight quoting “France will be led by a woman, either me or Merkel”, comments from Le Pen calling to the nationalist side of France to break free from EU rule but it may be too little too late. That is not to say that markets will not be volatile as a result.
Markets will just be open late Sunday evening as details emerge and liquidity will very tight as such moves in FX can have a tendency to be exaggerated, with large gaps forming in the market from where rates closed on Friday to where they opened on Sunday evening. As an example, EURUSD jumped 180 pips (1.69%) from the Friday close to Sunday open after the first round. There may already be plenty of the result priced into the Euro but a relief rally for euro pairs is highly likely should Macron be confirmed as the next French President. EURUSD traded to highs of 1.0990 overnight and now holds at key resistance, the area also represents the 50% retracement range from last year’s high to this year’s lows and thus may well hold firm into the weekend. Should we see a rebound in the NFP figure then markets will be looking towards downside support towards 1.0870/75.
GBP continued to rally yesterday following a far stronger Services PMI print which added to the already better manufacturing and construction PMI’s to help the composite figure far higher than markets had expected. The pound however, has failed to regain last week’s high levels against the USD and 1.2960 area still offers resistance to moves higher, while the 1.3000 area likely remains key to direction but given a weaker USD this week and strong UK data, it is surprising we have not seen the push higher, perhaps GBP is already running out of steam?
There is no doubt UK data thus far has shown impressive signs of resilience, however the BOE are unlikely to raise rates any time soon (if we are to believe their comments) and the big concerns for the UK and markets will be where real wage growth sits, as for the first time in a long time UK earners face negative real wage growth. While we have seen GBP enjoy relief from the announcement of a general election, with the hope of a “less hard” Brexit deal, the communication with the EU since that announcement has been more aggressive than some might have thought, not exactly the start to frank and friendly negotiations given some of the threats coming from both sides this week. EURGBP continues to find sellers above .8500 up to .8530 area, while buyers favour waiting for dips towards .8400.