The big event of yesterday was the ECB policy statement, as expected there was no change to rates or asset purchases but as always when there is no policy change, the attention was focused on the ECB press conference. Last time Draghi spoke, he was notably dovish and somber, almost downbeat in fact, this time however he sounded more positive, and despite several mixed messages coming across, the “all instruments” rhetoric was gone, and comments saying the euro was “irrevocable” helped the single currency rally higher on the day.
In the US, attention today is firmly fixed on the NFP figure, after Wednesdays record breaking ADP jobs report a March rate hike is almost 100% priced in and despite yesterday’s weekly jobless claims being marginally weaker than expected, the greenback was only slightly weaker on the day and held much of the week’s gains. GBP remained under pressure yesterday, with comments from PM May saying it was time for the UK to get on with Brexit not helping and there was also some budget fallout causing issues as a rise in rates for the self-employed stirring up some opposition. Broadly speaking, risk appetite was marginally positive with European indices pushing modestly higher while a late rebound in the US session saw stocks slightly higher after several declines (albeit very small declines). Overnight the Nikkei rose to a one week high, JPY found itself under some selling, currently sitting at 7 week highs.
The takeaway from yesterday’s ECB was a stronger Euro, based on several comments from Draghi. He highlighted that deflationary pressures had diminished and there was no longer any “sense of urgency” to act further to assist the economy. He did point out that the current QE program would run until December and they would continue to evaluate the economy but they appeared more comfortable to wait and see versus the last meeting where the “whatever it takes” and “every instrument available” talk was taken as a dovish stance. This was removed from yesterday’s commentary and although at times he appeared to have to consult his notes to answer questions, he perhaps was just ensuring to stick to the slightly more upbeat script. He avoided a question asking if rates could rise before QE has ended but the official statement did say that rates would remain at current levels or lower for a considerable time. The statement did point out that downside risk remain and if anything, we may have just seen a slightly more hawkish ECB, looking to keep pace with the recent hawkish stance from the US. It was nice to get a break from the French election and we may see broader data have a slightly larger impact if it fits into the ECB’s view. The calendar is light today so it’s likely back to the French elections for the main Euro driver.
March rate hike expectations are at a peak ahead of today’s NFP figures and while the USD remains well supported this could well be a case of ‘buy the rumour, sell the news’. March rate hike expectations sit almost at 100%, while June is above 85%, enough to call it a sure thing – for now. Wednesdays ADP report which showed 298k private payroll jobs added to the US economy caused the USD to soar higher. It’s unusual for the ADP to have such and impact especially as the NFP is really the go to labour market report.The fact that the ADP report beat the previous highest release by over 40k, market took note. Hence there is almost no NFP figure that will shift the markets expectations of a march rate hike, unless the figure is sub 100k, if anything the USD may find some weakness if the NFP is anywhere below the lofty expectations set by the ADP. For us however, we’ll be looking at the average earnings figure, expected to rise to 2.7% from 2.5% year on year. Should this fall short then we’ll almost certainly see USD selling on the back of profit taking on recent moves higher. EURUSD remains within range, between support at 1.0520/35 area, and resistance towards 1.0630/40. WE need a break of that range to get out of the sideways chop. GBPUSD has support around 1.2140 for now, with larger support below towards 1.2080/90 area. While 1.2250/60 zone should provide the first opportunity for GBP sellers to emerge again
GBP is under pressure, mainly on negative sentiment around Brexit but data has been turning to the downside and this is also weighing on the pound. Today we have a host of data with Industrial and manufacturing production due, along with construction output and trade balance figures. Both industrial and manufacturing are expected to have declined through Jan, while the trade balance figure is also expected to be weaker as well. Not great for GBP which is already struggling towards its lower post Brexit ranges, but with so much negativity already price, anything slightly better than expectations may give the pound a reprieve. EURGBP broke above .8700 yesterday, .8738 offers next resistance and above that we are likely to progress towards .8880 area. .8625 is a decent area EUR buyers to target.