Market News & Insights
4 October 2013

Markets Cautious, USD gets Reprieve as NFP’s are Cancelled

EUR/USD 1.3618
GBP/USD 1.6100
GBP/EUR 1.1823 (0.8455)
EUR/CHF 1.2255
GBP/CHF 1.4487
GBP/AUD 1.7063

This week has provided uncertainty around the USD, some clarity for the EUR and GBP has shown signs its recent strong run may look to take a breather on the back of a run of weaker than expected data.

The shutdown in the US has been one of the main talking points of the week as Obama battles to have a budget agreed, we are also approaching the debt ceiling which is due to expire on the 17th October. The lack of any progress on both fronts has led to some tentative risk aversion, however we have yet to see a full turn towards wide scale risk aversion. The USD certainly hasn’t shown any signs of benefiting from such a risk aversion moves as investors and traders alike avoid the USD while uncertainty continues.

The USD index has broken down to its lowest level in 8 months amidst the uncertainty and initial hopes for a speedy resolution are fading fast. This however may in fact give the USD a reprieve, yesterday’s non-manufacturing ISM survey was far worse than expected posting 54.4 vs 57.0 expected. This slowdown was pulled down by the employment aspect which was far weaker than previous months.

The shutdown means we will not have a release of the Non Farm Payrolls today and hence the USD may have avoided weak employment data which no doubt would have sent the USD plummeting even further. As it stands any sign of an agreement on budget negotiation may lift the USD back off it fresh lows.

The euro has had somewhat of a revival post ECB this week as the regions central bank remains cautiously optimistic about the regions recovery. In our view the Eurozone still maintains many of the same problems it had, growth expectations remain weak, inflation remains well below target and unemployment across the region is showing little signs of improvement. There are still political concerns surrounding Italy, as well as concerns on Greece and Cyprus but the one primary difference is the region is no longer in crisis.

The ECB have discussed further possible measures such as a new LTRO, interest rates cuts and continue to say they have tools available to them, with this kind of talk in mind we remain cautious of the Euro’s recent strength, Draghi himself insinuated they would prefer the Euro not be as strong as it is, although did not say it so black and white.

This has been a slower week for GBP, Septembers PMI’s started a huge run for GBP but this week’s figures did not live up to expectations. Before we get ahead of ourselves the figures were still strong, better than their US and Eurozone counterparts but it’s evident the pace of recovery is not going to be as fast as the market has begun to price in. Services, Construction and manufacturing PMI’s all missed to the downside and it appears we’ve had a short term fresh top in GBPUSD, with a fresh bottom in EURGBP.

There is no real data of note due out today and as such we expect US shut-down talks and Fed speakers to dominate the risk environment and markets remain cautious.