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Investors Look To Important US Employment Data For Direction As Trade Concerns Escalate.

By Alex Edwards

GBP/USD continued to grind slowly higher yesterday morning, buoyed by a good set of PMIs earlier in the week and some less dovish than expected comments from BoE Governor Carney. In a speech in Newcastle yesterday he said that the soft patch in Q1 was likely due to weather conditions and was pleased with the most recent set of positive data. It helped sure up expectations for an August rate hike and GBP/USD went on to reach a high of 1.3267, but it didn’t hold after David Davis told Thersea May that her “best of both worlds” plan for Brexit was unworkable, this on the eve of a crunch cabinet meeting on Brexit at Chequers.

GBP/USD slipped back towards the 1.32 figure and did at least hold above here for the rest of the London session, and overnight. The FOMC meeting minutes were also released but didn’t have too much of an impact on cable.

We may get more of a reaction from US jobs data today – the important non-farm payrolls is due at 1:30pm today. Meanwhile, the US trade war headlines may get more attention today and over the weekend as it’s be confirmed by Trump that tariffs on China will come into effect from midnight east coast time. China will respond reciprocally but as of yet the reaction in currency markets has been muted, perhaps because this date and time had been telegraphed a while ago.

FOMC meeting minutes didn’t really surprise all that much last night. They confirmed that the Fed were on a tightening cycle still (i.e. gradual hikes were needed). The central bank did reference the fact it was uncertain about what impact trade restrictions may have on the economy. Meanwhile, US economic data, released yesterday, was mixed with ADP Non-Farm Employment Change, a forerunner to today’s Non-Farm Payrolls, printing slightly weaker than expected, and ISM Non-Manufacturing PMI coming in stronger than forecasts.

US Non-Farm Payrolls is the major data release today. Consensus is for payrolls to rise 195k and for the unemployment rate to print at 3.8%. It will be interesting to see if recent protectionist measures have had an impact on the number, to which point we may also see some volatility in the dollar as tariffs on Chinese imports to the US are set to take effect from later tonight.

The euro made gains early on yesterday morning, a result of the Bloomberg report on the potential for an earlier than expected rate hike from the ECB. EUR/USD has traded either side of the 1.17 figure over the last 24 hours and is trading towards the top end of its most recent range this morning.

AUD/USD has pushed back above the 74 US cents level this morning despite trade concerns creeping back into the minds of traders. It’s difficult to pin-point precisely why the AUD has performed so well in the last few hours given the lack of any expectation beating data overnight – it seems to be tracking EUR/USD higher, which has recently broken back through the 1.17 big figure.

USD/CAD has traded a narrow range over the last 24 hours. It seems like the market continues in wait-and-see mode for new deadlines around the US-China tariff drama, before moving in either direction. WTI oil lost some ground on a higher than expected increase in US crude inventories yesterday but had little impact. Traders will also be cautious ahead of much anticipated employment numbers from both the US and Canada this afternoon.

Trade tensions continue to cast a pall over broader market direction and capped NZD gains overnight. The US is expected to introduce a 25% tariff on $34 billion in Chinese exports whilst China have made clear they will respond in kind. As such investors are likely to sit on the fence, with direction constrained to current ranges until a clearer picture emerges later today. There’s a real risk that a tit for tat tariff program could quickly escalate into a full scale trade war, further hampering demand for risk and adding to mounting downward pressure on the NZD.