USD Too Exhausted To Recover
USD too exhausted to recover on healthy US jobs report, but dip buyers will be encouraged. GBP weakness developing again as Brexit jitters remerge. CAD on the front foot into the weekend as oil prop and domestic payrolls bolster.
It has been a choppy week in the FX markets, largely down to the impulsive USD buying on the first trading day of the year. Had we seen a little more moderation in the lead up to today’s US jobs report, we may have seen a more positive response from the greenback, as the much-in-focus average earnings beat on expectations even if the headline gains missed consensus. The Nov stats were revised higher to offset this, and the up-tick in the unemployment rate was expected.
Perhaps of greater influence this week has been the revelation (in the FOMC minutes) that Fed members have been considering the potential impact of president elect Trump’s fiscal stimulus plans, and as such, scepticism has priced in a little more risk back into the USD. Having carved out fresh multi-year lows just under 1.3050, EUR/USD is now comfortably back above 1.0500, but perhaps aided by renewed buying interest in EUR/GBP as the prospect of triggering Article 50 in March has renewed jitters in GBP markets again(!). We still have the Supreme Court decision on the govt appeal to look to – which may be delivered next week – but Sunday also sees the PM May in her first interview of the year which may see some early Sunday volatility in the pound.
On the EUR side, inflation readings are finally on the up, but political risks in the single unit region will also muddy the waters here at some stage, so EUR/USD sellers are also waiting for better in-rate levels here – preferably from 1.0650 up. In commodities, we see the CAD on the front foot as we go into the weekend, with oil price stability having aided the move from the high 1.3500’s down to 1.3200, but the much better than expected Canadian jobs data pushing the spot rate through the figure, with the prospect on a test on 1.3000 now very much on the cards. The CAD crosses perhaps allow greater potential from here, notably against GBP and the JPY.
AUD has enjoyed a near term reprieve, but with the help of the trade balance returning to positive territory for the first time since early 2014. NZD has been following in its wake to keep the AUD/NZD inside a tight range, but affords the same positive yield but with less China related risk (exposure).
Looking to the highlight data reads next week, we have to wait until Friday before the top tier US numbers – in the form of Dec retail sales. Industrial and manufacturing data in both the UK and EU midweek, with the latter also releasing the Sentix investor confidence index on Monday. UK trade also due. Japanese holiday on Monday – Coming of Age day.