GBP/EUR 1.2187 (0.8204)
Markets were relatively subdued yesterday as much of Europe was closed for May Day bank holiday, while in US markets volumes and volatility remained anaemic. EURUSD traded within a brutal 30 pip range through the day yesterday, to put this in context this has only happened 9 times in the last 10 years. UK markets were open yesterday and stocks rose for the 4th day along with the pound which continues to derive strength from the outperforming economy. The USD index was relatively flat on the day ahead of today’s big event with the NFP’s. Asian markets were mixed overnight ebbing between gains and losses, Chinese Manufacturing PMI was marginally worse than expected but underlying figures were encouraging. Interesting to note that Asian currencies have been outperforming this week.
The big event of the day is the release of the US jobs report, including the unemployment rate and non farm payrolls. The weak jobs picture through Q1 is a primary cause for the USD remaining weak as jobs growth severely lagged, impeded by the poor weather. The unemployment rate is expected to fall back to 6.6% from 6.7% but more importantly payroll data is expected to see 215k jobs added to the economy. Anything under the 200k mark will be bad news for USD however a print in line or better than expected may just give the USD the break it’s been waiting for.
Data coming from April already would suggest significant improvements in the economy and the FOMC indicated on Wednesday that they expect the labour market to show signs of improvement through Q2 and the rest of the year. The USD index remains poised just off 6 month lows and EURUSD and GBPUSD are just off multi year highs, should the figure be weaker than expected we would expect breakout in several USD pairs with potential for EURUSD to head towards 1.4000 while GBPUSD will be hitting fresh 5 year highs towards 1.7000. A strong figure will really reverse the greeenback’s fortune as we approach the summer months.
After a breather yesterday the Eurozone has plenty of data this morning to keep us interested. The post CPI rally halted ahead of 1.3900 and thus far this morning the EUR is mostly lower across the board. The single currency took a lot of positivity from stronger Spanish data this week however this morning Manufacturing PMI dropped to 52.7 vs 53.4 forecast. The EUR selling has halted somewhat as both French and Italian manufacturing data was better than expected with the Eurozone figure due out at 9.00am. Unemployment for April is also due this morning but no change is expected from the 11.9% rate.
The pound continues to be guided by its interest rate outlook and speculation the BOE will look to raise rates sooner than expected. There were a number of BOE members comments across the wires yesterday suggesting the BOE see no need to begin to raise rates but there has also been some market chatter that there is some dissension amongst MPC members so next week’s meeting ( or the minutes two weeks later) may give us some further guidance.
Key levels to watch today are: EURGBP .8200, a break below here opens up a swift move towards this year’s lows around the .8160 level. EURUSD 1.3940/50 area, a break will see 1.4000 in target and the ECB under serious pressure. GBPUSD yesterdays 5 year high at 1.6920.