“Full steam ahead” for the US economy and the Dollar seems to be the theme in the markets at the end of the week. Following the strong - at least on the surface - US GDP data and Jerome Powell's upbeat remarks after the Fed meeting, today is the Non-Farm Payrolls' turn to excite the Dollar bulls. Meanwhile, the Euro looks eager for a bounce higher but the risk lies to the downside ahead of the EZ CPI data. Equities lost ground but look poised to recover, Gold threatens further losses and Oil appears vulnerable in the short term.
The Dollar will be in focus today in light of the Non-Farm Payrolls report pending for release later in the day. Greenback traders have been buying the currency during the past 24 hours after the FOMC meeting and Jerome Powell's remarks indicated that there's no case for rate cuts by the Fed any time soon. With the head of the US central bank focused on the positive side of the economy and today's labor market report expected to print strong, the Dollar seems poised for more gains.
The number of jobs added to the US economy is predicted to come in around 190k, which if confirmed portrays the robust state of the labor market. At the same time, wage growth is also expected to rebound from last month's weak reading, with economists looking for a 0.3% monthly advance. Barring a surprise in either component, today's NFP data should validate Fed's bullish view of the economy - even though low inflation is still an issue - and will provide a boost to the Dollar. Dollar/Yen is hovering around 111.50 this morning but a push higher points towards the 112 area.
The Euro will also attract investors' attention today, not only due to the NFPs, but also in light of the Eurozone inflation figures. The Euro area Consumer Price Index is due to be released before the US job figures and the Euro will take its cue from the way the data comes in. Analysts are expecting a positive printing which should provide support to the weakened currency but the risk lies to the downside: a potential miss in the CPI report will catch traders off guard and a negative reading will come in contrast to the bullish GDP figures printed earlier this week. The Euro is trading around 1.1175 at this time and a bearish CPI will clear the path towards 1.11.
Elsewhere. Gold extended its losses with the Dollar being on the ascendancy and the $1,268 lows came under pressure. The yellow metal saw a bounce overnight from this key support area but the decline might not be over yet. Depending on the way the NFP report prints today, this key medium-term level may be penetrated and, should that happen, then the next level to focus on will be the $1,254-55 area. Similarly, Oil saw further weakness yesterday and the $62 level was the most recent support that gave in; prices are trying to pull back but the near-term bias points lower with the $60.50 level coming into focus.
Global equities ended the day in the red with Europe close to 1% lower while the US lost 0.3% on average. Nevertheless, equity futures on both sides of the Atlantic are pointing higher this morning, ahead of the Non-Farm Payrolls report. Powell's lack of hints towards a potential rate cut may have disappointed some investors but, as we mentioned yesterday, it is our view that his overall sanguine outlook in regards to the domestic economy will be the prevailing - and bullish - catalyst.
MARKET EVENTS TO WATCH
- UK Services PMI - 12.30pm
- Euro-Zone Consumer Price Index - 1pm
- US Non-farm Payrolls - 4.30pm
- US Average Hourly Earnings - 4.30pm
- US ISM Non-Manufacturing/Services Composite - 6pm
All times are GMT +4.
Written by Konstantinos Anthis, Head of Research