Market participants will focus the attention on the release of the Non-Farm Payrolls report today in search for some piece of good news from the US. The Dollar gained over the past 24 hours after having dropped on the back of the dovish tilt in Fed's policy. A round of positive figures will help the US currency remain afloat towards the end of the week but more downside looms in the medium term. The Euro and the Yen under-performed, Gold extended its gains to $1,325 and Oil retreats after having a go at the $50 mark.
The Dollar was able to make small gains yesterday after the strong losses we saw after Jerome Powell made it clear that the Fed will stay put in regards to interest rates for the time being. Investors' positioning on the US currency is another reason for the Dollar's recovery as the amount of Dollar longs has been reduced recently, hence no significant covering of bullish positions took place after the FOMC meeting. Today's NFP event will be another opportunity for the greenback to push higher, barring an unpleasant surprise.
Analysts are expecting a modest 165k increase in the number of jobs added which comes after the 312k figure last month. A steady reading will allow the Dollar to sustain its gains and this is our central scenario, however we cannot preclude the chance of a nasty miss. The recent government shutdown is not expected to have taken a serious toll on the labor market but with it being one of the few parts of the US economy still firing on all cylinders the tail risk of a miss would make Dollar's case a lot worse.
The Euro is trading around 1.1450 this morning having failed to stay above 1.15. The intrinsic problems of the Eurozone economy are a headwind for the shared currency and today's NFP report will decide its short-term outlook. A strong reading will push prices towards 1.14 and signal a consolidation around these levels for some time but a bearish printing of the US report will again drive the Euro towards 1.15 as the Dollar would take another hit. Dollar/Yen is pushing towards 109 and again its price action depends on the NFPs; a push towards 109.50 would come on the back of positive report while a miss will expose the 108 area.
Commodities saw similar price action yesterday with both Gold and Oil making early gains only to reverse course and end the day lower. The yellow metal benefited from Dollar's lack of support and reached the $1,225 mark before settling around $8 lower. Dollar's price action will determine the next step for Gold and a recovery for the US currency will put pressure on prices; the support lies at $1,310 and if the yellow metal remains above that we should then expect another push towards $1,335 soon. Oil is settling around the $54 area after an unsuccessful attempt to break above $55. The bullish catalysts remain in place for the black gold to resume its uptrend but for the time being it's more likely we will see a consolidation below the key $55 resistance.
Stocks had a mixed day yesterday, with some European markets making small gains and other closing just below water. The US bourses were able to close in the green with the exception of the Dow Jones that saw marginal losses. The Sino-US trade talks produced little progress hence investors remain in the sidelines with futures on either side of the Atlantic expected to open flat.
MARKET EVENTS TO WATCH
- Euro-Zone Consumer Price Index - 2pm
- US Non-Farm Payrolls – 5.30pm
- US ISM Manufacturing - 7pm
All times are GMT +4.
Written by Konstantinos Anthis, Head of Research