Monday, October 8, 2018

Non-Farm Payrolls miss but will this affect Dollar's direction?

Tags
  • Dollar
  • Gold
  • Euro
  • Pound
  • Stocks
  • Oil

MORNING BRIEFING

A mixed performance for the Dollar after Friday's Non-Farm Payrolls report missed its mark with investors unsure whether they should buy or sell the currency going forward. The Pound was the best performing currency at the end of last week with prices rallying to 1.31 but its outlook is still unclear. A series of fresh data is pending for release over the next few days, especially from the UK and the US and this should provide currency pairs with renewed stimulus. Equities ended Friday's session below water while commodities trended lower.

The Non-Farm Payrolls data was less than stellar on Friday with the number of jobs added to the US economy missing its mark by a wide margin, printing at 134k versus expectations for 185k. At the same time, unemployment dropped to a 48-year low while job growth remained unchanged. However, this miss has to be attributed to the recent hurricane that struck the US coast, which prevented hundreds of thousands from going to work. As such, the labor market's growth is not put in question and Dollar's momentum shouldn't take much of a hit.

Looking ahead, inflation is the key concern for the Fed and there are now voices calling for a steep path of tightening next year as well to prevent prices' levels from surging out of control. Later this week, the US CPI report is pending for release and economists are expecting another strong reading that will justify Fed's worries about the accelerating inflation. If the data prints strong as expected, then the case of more rate hikes predicted for next week will solidify and this will push the Dollar even higher. Dollar/Yen managed to hold above 113.50 last week and if the Dollar picks up pace again then the 114.50 highs will be tested again.

The Euro and the Pound followed different paths on Friday and while the shared currency remained around the 1.15 area, Sterling surged above 1.31. Regarding the Euro, we will have to wait until the latter part of the week to get fresh stimulus as there's nothing on the calendar until Friday's German inflation data. Italy's troubles still cast a doubt over the Euro while the political uncertainty seen in France also keeps the Single currency capped so more weakness may be the order of the day.

In terms of the Pound though, renewed Brexit optimism sent prices rallying but in truth there was nothing concrete to change the status quo. As such, we will have to rely to new data coming in to provide the direction and this will only happen on Wednesday when the Industrial and Manufacturing Production reports will be released. In the interim, Dollar's price action will be the key catalyst so the Pound may see a pullback after last week's gains; the key level to keep an eye on is the 1.3050 support and as long as Cable holds above this then more upside is possible.

Commodities saw little action on Friday with Gold staying trapped within its recent range while Oil consolidated between $74 and $75. For Gold, price action will hinge on the way the Dollar trades post-NFPs and since the Asian markets opened fresh pressure is pushing prices lower. The $1,195 support is about to be broken and should this happen then the next level to focus on is the $1,190 figure, and the $1,180 mark in extension. At the same time, Oil prices continue to retreat after almost hitting $77 last week; with more weakness likely over the next couple of days the key support stands around the $72.50 area and as long as prices remain above this a new leg higher is possible.

Equities ended last week under water and the Asian markets have kicked off trading with a bearish bias as well. Futures in Europe and the US are marginally negative this morning after the Chinese central bank's decision to cut the reserve ratio for a second time in 3 months. With trade tensions taking a toll on domestic growth, the PBOC lowered cash requirements to help stimulate growth but whether this will be enough remains to be seen. In any case, China's decision is pushing the European and US exchanges lower so the start of the week shapes up to be a bearish one.

MARKET EVENTS TO WATCH

  • Euro-Zone Sentix Investor Confidence - 12.30pm
  • Fed's Bullard Speaking in Singapore - 1.30pm

All times are GMT +4.

Written by Konstantinos Anthis, Head of Research

 
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