At the end of a busy week for currencies and equities it's the Non-Farm Payrolls report that demands our attention today. The US labor market data will shed more light on the performance of the domestic economy and depending on the way it prints the Dollar will take its cue for the month ahead. At the same time, the Pound takes a beating even though the BoE raised interest rates yesterday. Equities are preparing to open higher for the day ahead after a bearish session yesterday, primarily in the European markets.
The Dollar is trading higher this morning almost across the board ahead of the release of the US labor data. Expectations are set for a positive set of figures with analysts seeing a small potential decline in the number of jobs added but higher wage growth and a drop in unemployment should provide the bullish tilt. Should this be the case, the Dollar will continue trending higher especially after the Fed is getting ready to raise interest rates next month. The European majors and the commodity dollars look weak and we should look for an extension of the Dollar rally against them.
Dollar/Yen is the only instrument where we see the Dollar struggling to build momentum holding below 112 ahead of the release. Even though the BoJ confirmed its accommodative stance and the Fed stayed on a path of further tightening, the currency pair hasn't moved higher. We believe that a strong NFP reading today will be the catalyst needed to drive prices above 112 but we'd be hesitant to bet on a move beyond Wednesday's highs; on the other hand, in the off chance of an NFP miss prices will trend towards the 111 floor.
The Pound is trading just above the 1.30 mark this morning following the Bank of England's decision to raise interest rates. However, investors deemed this decision a “bearish hike” as Carney reiterated that Brexit is a key concern for the central bank and that monetary policy might have to be adjusted depending on developments on that front. Today's price action in the Cable will depend on the Services PMI report from Britain and eventually on the NFPs: a bearish PMI printing and strong NFPs threaten to drive the Pound to new lows with 1.2950 coming up as a target.
Commodities took different paths yesterday with Gold coming under more pressure from Dollar's gains and Oil surging higher once again. Gold prices hit a new yearly low and further Dollar strength has the potential to take the yellow metal all the way to the $1,200 floor. Oil however rallied to $69 again, bouncing from the bottom end of its $67-70 trading range as news that Iran is conducting military exercises near the Strait of Hormuz elevates tensions; we would expect this move to trend all the way to the top end of this price range.
Equities in Asia are trading just below water this morning even though the US session saw most indices closing in positive fashion while Europe was deep in the red. It's clear that stock traders are focused on the trade war developments as Trump is threatening to escalate the dispute with China. Having said that, the European futures indicate a moderately bullish opening bell so longer term investors might attempt to take advantage of the recent losses to re-establish their buying positions at a lower price.
MARKET EVENTS TO WATCH
- UK Services PMI - 12.30pm
- U.S. Non-farm Payrolls - 4.30pm
- US ISM Non-Manufacturing/Services Composite - 6pm
All times are GMT +4.
Written by Konstantinos Anthis, Head of Market Research