- Rates: AHE key to determine market reaction?
Today’s trading session will be a waiting game on US payrolls. Wage inflation (average hourly earnings) will be the key component of the jobs report from a market point of view. Given the way core bond markets set aside the US-Iran conflict, we think the market reaction could be asymmetric with a sharper reaction (lower in US Treasuries) in case of a positive beat. - Currencies: Payrolls to support further USD gain?
Today, the focus for USD trading will shift from geopolitical topics to the US payrolls. Of late, the dollar often profited more from rising core yields than the euro. Hence, a solid US payrolls report in theory should be USD positive. From a technical point of view, the 1.1066 support is important. A break would deteriorate the technical picture for EUR/USD
The Sunrise Headlines
- Wall Street notched higher and hit fresh records with gains up to 0.81% (Nasdaq). Asian stock markets started mixed but are powering up and living on Sino-US trade optimism. South Korea outperforms (+0.87%)
- US president Trump announced the US and China will start negotiating a broader phase 2 trade deal soon after signing the phase 1 deal next week. However, the accord might not be finished until after November’s US election.
- The US House voted to curb president Trump’s authority to strike Iran as the Middle East remains tense. The controversial move implies Congress should give consent before any escalation, seeking to avoid a tit-for-tat pattern
- Fed officials Clarida, Williams and Evans sang in harmony stating the economy may have weathered the worst as headwinds are abating. Easing trade tensions and the Fed’s three “well-timed” rate cuts continue to support the US economy .
- Australian retail sales jumped 0.9% (Y/Y) in November following October’s flat sales, defying the expected 0.4% increase. Australian households appear to be responding to the RBA’s rate cuts and the government’s tax rebates.
- Japanese household spending fell for a second straight month in November to -2% (Y/Y), markets expected a 1.8% drop. October’s sales tax hike, a super typhoon and tepid wage growth continue to undermine private consumption.
- Today’s economic calendar includes US payrolls, US/Canadian employment data and EMU manufacturing data. Investors will gauge whether the US labour market remains solid to keep the longest US economic expansion on track
Currencies: Payrolls To Support Further USD Gain?
Will payrolls support further USD gain?
Yesterday’s intraday moves in the major dollar cross rates were broadly in line with the overall risk rebound. The safe haven yen retreated, lifting USD/JPY back up to the 109.50 area. EUR/USD held a tight sideways range but remained in the defensive. The 1.11 big figure was tested, but no sustained breach occurred yet. Investors probably awaited today’s US payrolls. At the same time, the pair in no way profited from the improved global risk sentiment. Low/better than expected US jobless claims were a minor USD supportive, too. EUR/USD closed unchanged (1.1106).
Overnight, Asian equity indices are mostly supported by the record race on WS. China underperforms. Even so, USD/JPY gains only marginally (109.55/60 area). The recent yuan rally (USD/CNY 6.9320 area slows). The Aussie dollar (AUD/USD 0.6880) rebounded from the 0.6850 support after a strong November retail sales report (+0.9% M/M). EUR/USD is still holding the tight sideways range in the low 1.11 area.
Today’s focus for USD trading turns the US payrolls. 160 000 net job growth is expected which is still solid after last month’s 266 000 gain. AHE are expected to grow 0.3% M/M to be stable at 3.1% Y/Y. Price and wage data might become more important for trading, including for the dollar. However, base effects from last year make a big upward surprise less evident. For US interest rates, we see somewhat of an asymmetric risk with the downside (in yields) well supported. In theory this might be a further USD supportive in case of a decent payrolls report. Even so, we also continue to keep a close eye the EUR/USD technical picture.
The euro recently underperformed, and this occurred both in a risk-on and a risk-off context. Short-term, the dollar apparently profits more from higher core yields than the euro. In the past, a constructive risk context often supported EUR/USD (via EUR/JPY) but for now this isn’t working. EUR/USD has dropped within the 1.1125/1.1066 MT support area. A drop below this band would seriously deteriorate the ST technical picture. It’s not our preferred scenario, but risks are building. Sterling lost temporary ground yesterdayas BoE’s Carney indicated that the MPC is still pondering the merits of further easing. He also said the BoE as ample room to act. EUR/GBP rebounded (temporarily) north of 0.85. Today, BoE’s Teneyro speaks. Despite yesterday’s Carney comments, we don’t expect a clear directional trend in EUR/GBP. The pair might hold near the 0.85 pivot
EUR/USD drifting into the 1.1125/1.1066 support area. Payrolls to decide on next directional move?
