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Investors Sell The Fact As Trump Spoils The Jobs Data Surprise.

Tuesday 5 June, 2018

Daily Currency Update

It was a generally steady morning session for the most part on Friday as investors and traders geared up for the US non-farm payrolls data that afternoon. That said, GBP did get a bit of a boost from the release of better than expected UK Manufacturing PMI, which printed at 54.4 vs. forecasts for 53.5. GBP/USD was also pulled higher by a better bid EUR/USD that morning which broke back through the 1.17 figure. The US jobs data came in much better than expected come the afternoon with the employment change coming in at +223k vs. expectations for +189k and the unemployment rate printing at 3.8% vs. 3.9%. The dollar strengthened on the news, although the effect wasn’t completely clear in GBP/USD – a good sign for the pound perhaps? The data wasn’t a complete surprise though, it has to be said, as Trump dropped some strong hints that the number would be positive in one of his tweets. He wrote “Looking forward to seeing the employment numbers at 8:30 this morning”. The pound is steady this morning and opens at 1.3365 vs. the dollar. Data wise, the focus this week turns to a series of UK PMIs. A few MPC members are also due to speak throughout the next 5 days too. It isn’t a busy one on the data front but that’s not to say it won’t be any less volatile compared to other weeks.

Key Movers

All eyes were on US non-farm payrolls on Friday. Although President Trump may have spoilt the surprise, the data was still a big beat and the US dollar strengthened a little on the news (see above). The wages data was also strong and showed that average hourly earnings were up 0.3% vs. 0.2% expected. The dollar strength was most tangible in the USD/JPY cross, the pair rallying from 109.10 to 109.75. It was less tangible vs. the likes of the euro and pound, perhaps as investors offered the fact (having bought the rumour following Trump’s tweet). The trade war rhetoric has been an ongoing one over the weekend. G7 ministers met and the EU, China and Canada took the chance to make it very clear they were not happy by the decision of the US to impose new tariffs on steel and aluminum imports. Canadian PM Trudeau said that the move by the US was “totally unacceptable”. There hasn’t been too much of a reaction in currency markets yet, but the story is likely to bubble away in the background, and so could have an impact on currency markets at some point. Watch this space. The docket for US data is looking a bit thin this week with ISM Non-Manufacturing PMI being the biggest release of the lot. The ongoing trade war, Trump tweets and political invents in Europe will likely be the key drivers.
EUR/USD opens stronger than it did on Friday but uncertainty surrounding the Italian political situation will still be influencing short-term moves. Snap elections have been avoided thanks to the confirmation of the 5S-League coalition government, but the market will probably remain concerned given the fiscal risks and tension this coalition brings into the EU. The EURUSD traded within a 1.1617-1.1718 range and the next levels to watch for the start of the week are 1.1608 (support) and 1.1728 (resistance). Like the US data docket, it’s a bit thin this week. ECB President Draghi is speaking on Tuesday but that’s about it as far as key economic releases are concerned for the EU.
Australian Private Capital Expenditure q/q saw a slower than expected uptick to 0.4% overnight. Despite missing target the previous reading was revised up from -0.2% to 0.2% meaning the reaction to the Aussie was relatively muted, especially given the rally the commodity currencies were enjoying on the back of easing fears re: Italy. All eyes now turn to tomorrows US Jobs Report with a miss likely to propel the Aussie, Kiwi, Loonie etc higher still. AUD/USD is at .7580 with GBP/AUD at 1.7590.
The Canadian dollar has surged over the past couple of days with USD/CAD dropping from around 1.3050 to currently sit at 1.2850. Improving risk sentiment, rising crude oil and a hawkish hold from the Bank of Canadas latest interest rate decision all adding support to the Loonie. A hold from BOC head, Stephen Poloz was expected however he indicated that the policy makers were likely to raise rates again soon as some of the dovish language from the statement was removed and concerns over household debt were countered by comments on rising incomes. A move below 1.28 could be on the cards tomorrow should US data miss target. GBP/CAD trades at 1.7140.
Overnight saw the latest ANZ Business Confidence reading drop even further into negative territory down to -27.1 from -23.4. The report’s authors noted: “Our composite growth indicator, a combination of business and consumer confidence, is consistent with around 2% y/y growth. It suggests the economy may continue gently losing steam, though fiscal stimulus and the record-high terms of trade are providing crucial support.” Despite this NZD/USD has regained the crucial .70 level with GBP/NZD at 1.9050.

Expected Ranges

  • GBP/USD: 1.3310 - 1.3460 ▼
  • GBP/EUR: 1.1375 - 1.1450 ▼
  • GBP/AUD: 1.7505 - 1.7680 ▼
  • GBP/CAD: 1.7055 - 1.7205 ▼
  • GBP/NZD: 1.8975 - 1.9125 ▼