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Employment Week Non-Farm Employment Figures Out Friday / ADP Today

By OFX

Much of this week has been about the prospect of the US implementing new tariffs on $200 billion worth of Chinese imports by the end of the week. Yesterday we saw the release of U.S. Trade Balance data, and despite the imposition of tariffs in July, the US trade deficit increased to $50.1 billion, a 9.6% increase from the previous month. The U.S. trade deficit widened to a five-month high in July as exports of soybeans, and civilian aircraft declined, and imports hit a record high. This suggesting that trade could be a drag on economic growth in the third quarter.

The macroeconomic focus was on ADP employment change for August which missed consensus of 195K and print. Weekly continuing jobless and initial jobless claims both post better than previous at 1.707M and 203k respectively. Later today we have Markit PMI, ISM Manufacturing, as well as Factory Orders. This data will be followed up with crude oil inventories release at 11 am today. Market Participants will then focus their attention US employment numbers tomorrow with Non-Farm Payroll expected to print at 191K and the unemployment rate to drop to 3.8% from the current 3.9%.

The Bank of Canada held interest rates steady on Wednesday as expected and reiterated that while more hikes would be needed to keep inflation on target. The BOC's overnight interest rate remains at 1.50 percent. The Canadian Central Bank has raised rates four times since July 2017 in response to the growing economy. CPI inflation moved up to 3 percent in July and yet the BOC kept interest rates unchanged. Senior Deputy Governor Carolyn Wilkins speaks today at 2:30 EST and may shed some valued light on the current BOC view on the Canadian economy.

Looking ahead today and the macroeconomic calendar is relatively light with the only release Building Permits for August with a forecast for a lift of 1.1% from the previous month yet print at -0.1%. On Friday all eyes will be on Canadian employment number forecasted at 54k, while the unemployment rate is expected to rise from 5.8% to 5.9%.

The Euro has been trading in a tight range for much of the week as trade uncertainty dominated the headlines. Concerns with Brexit, the US and EU trade dispute and the US and China trade war all weighed on the market with volumes and trading activity proving thin. The momentum has shifted slightly, however, with the Euro appreciated significantly during the Wednesday session. Opening this morning at 1.1631 against its US counterpart, the Euro shrugged off much of the concerns on the back of positive headlines.

Domestically the day was dominated by the headlines with reports that Germany is ready to accept a less detailed agreement on the UK’s future economic and trade ties in a bid to get a divorce deal done. Germany later refuted the report, outlining that their position remains unchanged however the market did rally 0.3%. Economic news was also a bit of a mixed bag with PMI suffering downward revisions and retail sales even falling.

Against this backdrop, the Fibre (EUR/USD) found further support from the recovery in emerging markets. Risk-sentiment globally shifted positively to riskier assets and currencies with the Euro also finding help from the rising tide. While marginal at best, the Euro does find itself well supporting going into Thursday. Traders will also be keeping a close eye on the headlines.

The Great British Pound has had quite the rollercoaster ride against the Greenback on the Wednesday having moved from lows of 1.2785 to highs of 1.2982 all in the space of 1-hour making it its most significant jump of 2018. The main catalyst for the move was from Bloomberg reports of the UK and Germany willing to drop critical Brexit demands. The report said, “the British and German governments have abandoned key Brexit demands, potentially easing the path for the EU and UK to strike a deal.” The significant shift in positions could make an agreement easier to achieve which was well received by the Sterling.

It’s a broken record, but any Brexit related news will likely dominate today’s session. There’s no UK data due out today, and so as far as economic data goes, the focus will turn to US employment numbers due for release tomorrow morning at 8:30 am EST.

The Australian Dollar finds itself in familiar territory this morning, flirting with the 0.72 level. Opening this morning at 0.7192, the Aussie was well supported for much of the Asian session with Q2 GDP surprising the market. Ultimately, however, the almost vertical incline at the time of the announcement was whittled away to be a footnote in the broader narrative.

Second quarter GDP dominated proceedings for much of the domestic session with a posting of 0.9% against the expected 0.7% expansion, ultimately recording a 3.4% increase for the year to June. The Aussie climbed almost immediately by approximately 40 points to test 0.7210 but couldn’t breach the level. The market took the news with a grain of salt and quickly unwound the Aussies gains, flatlining to as low as 0.7148 at the European open.

Globally, emerging markets were the big winners of the day with a rising wave of positive risk-sentiment forcing the USD lower across several emerging market and commodity currencies. The Aussie also benefitted from this, although it was limited, with a slow, gradual rise to where we open this morning at 0.7197.

Having spent most, it’s time under the 0.6550 level during the local time on Wednesday. The New Zealand Dollar opened the Asian session higher at 0.6590, and it is flat to start the North American session trading at 0.6595. Yesterday we saw the release of the ANZ Commodity Price Index which reported a drop of 1.1% month on month for August which was its third consecutive monthly decline. The index is down 0.5% year on year and reports show that of the 17 commodities in the ANZ's index, seven fell, four were unchanged and six lifted. The data had little impact on the Kiwi, and despite touching a near 30-month low, the Kiwi has managed to recoup some losses on the back of a broad-based USD weakness.

Looking ahead, the local docket is light and therefore the Kiwi will likely take its direction from offshore markets, tonight sees US ADP Non-Farm Employment Change, always a key piece of data that looks at employment growth.

On the technical front, we see support sitting at 0.6530 and 0.6500 with resistance up at 0.6600 followed by 0.6660.