The European majors are front and center again with the Euro hitting August's lows and the Pound rallying on encouraging Brexit news. The Dollar's outlook hinges on the release of the NFP report tomorrow where analysts are expecting a strong rebound in the jobs added figures. Gold tests its medium-term support, Oil continues to trend lower while equities extend their recent upwards rally.
The Pound comes to the forefront today in light of the Bank of England Rate Decision and Governor Carney's press conference. Even though there will be no changes in policy, the simultaneous release of the Quarterly Inflation report further highlights the importance of today's event as the central bank's projections will take a toll on Sterling's outlook; the QI report comes at a time when the Pound is facing significant volatility over the past few hours on the back of Brexit-related news. A report on The Times mentioned that the UK banks will have access to EU's single market after Brexit, according to an agreement that will be announced over the next few weeks.
Following this news the Pound has come off its lows and is trading around 1.2850 this morning and its direction today will depend on Carney's remarks and the QI report's projections. Given the importance of the Brexit negotiations and the recent data out of the UK, the most likely scenario is that Carney will opt for a cautious tone that threatens to send prices lower again. Recent figures from the UK haven't excited investors: retail sales missed, GDP printed lower and all PMI data came in softer last month. As such, Carney will have little to be happy about so our base scenario calls for a retreat lower today. However, in case the BoE Governor downplays the recent deterioration in data and instead focuses on the latest rumors of an impending Brexit agreement then the Pound will rally further with 1.2950 the next area of interest.
The Dollar continues to push higher ahead of tomorrow's Non-Farm Payrolls report. The US currency saw more gains versus the Euro and the Yen while Gold was also pressured to the downside. The US employment figures due tomorrow should reveal a healthy rebound in the number of jobs added while wage growth should remain positive helping the greenback extend its gains. Having said that though, we also need to note that several reports from the US continue to indicate domestic weakness and this may come into play as November progresses threatening the Dollar with a correction to the downside. This potential weakness may be further highlighted if any components of the NFPs miss tomorrow so, even though our base scenario still calls for a positive NFP reading and more short-term Dollar gains, we need to be mindful of a potential negative surprise and/or some Dollar weakness during the weeks to come.
Commodities remain true to their recent short-term trends with Gold declining on the back of Dollar's gains and Oil still pointing lower from a technical perspective. The yellow metal moved as low as $1,213 yesterday to test its key support area it seems to bounce higher but much will be decided by the NFP data: a strong reading will send the Dollar higher and Gold would retreat further towards the $1,208 level while a miss will trigger a correction towards the $1,230 area. Oil broke lower once again and even though the momentum behind the decline seems to slow down we may see further short-term losses towards the $64.50 base of support.
European and US stocks had another day of gains yesterday and this morning equity futures on either side of the pond are pointing higher. Stock traders are happy to dip their toes back in the water again with global risks receding and tech stocks showing strong results, as Facebook's figures exceeded analysts' expectations sending the FAANGs higher. At the same time, solid ADP employment data helped calm investors' nerves propelling the major indices upwards. We expect this rebound to extend until tomorrow's NFPs report and depending on how this prints we may see a further continuation or a reversal lower again.
MARKET EVENTS TO WATCH
- Bank of England Bank Rate Decision - 4pm
- BOE's Carney speaks at press conference in London - 4.30pm
- U.S. ISM Manufacturing - 6pm
All times are GMT +4.
Written by Konstantinos Anthis, Head of Research