Quite start to UK election and US jobs week

We are heading into another event-full week. The UK general elections (Thu) and the US jobs report (Fri) are the major talking points this week.

Count-down into the UK election

With three days to go before polling day in UK general election, the political debates occupy the UK’s headlines. The election is expected to be one of the most closely fought in the post-war era. As a frontrunner failed to emerge in this year’s election campaign, with both Labour and Conservatives slugging it out for a marginal lead, the latest surveys give no clarity on the possible outcome. A Conservative / UKIP or Labour / SNP coalition were seen as high probability scenarios. However, the UK Labour party leader Miliband said to envisage no deal with SNP in an interview to BBC Radio. The uncertainties should continue reinforcing the sell-off in Gilts and UK equities, therefore keeping the downside pressures tight on the GBP-complex.

GBPUSD opened the week at about the 100-dma pivot (1.5160) with significant decline in last week’s positive momentum. Decent vanilla puts trail below 1.52/1.51 before May 7 and should support the extension of weakness to 1.5100 (Fib 50% on April 13/17 Fibonacci projection over April 21/27), before 1.5030/43 (Fib 38.2%). The key support stands at 1.4857 (two week low).

EURGBP tests the critical resistance zone of 0.73935/0.74395 (Fibonacci 38.2% on Dec’14 – Mar’15 sell-off / 100-dma). A belated appetite in EUR should be a good support to clear offers and to challenge 0.75000/100 (Fib 50%) in the short-run.

RBA to cut rate

AUDUSD legged down to 0.7803 following faster contraction in Chinese manufacturing in April (acc. HSBC PMI release). The iron ore delivered to Qingdao in China bounced back from $60.

RBA meets on May 5th and is expected to lower its cash rate target by an additional 25 basis point to a fresh historical low of 2%. AUDUSD trades with negative bias below 0.7910 pivot and is expected to extend weakness to 0.7745/64 (area including 21/50-dma and Fibonacci 38.2% on Apr 14-29 rally).

This being said, the RBA has already surprised the market this year, aiming to prevent visibility on its policy and to protect the efficiency of its actions. It has potential to do so at tomorrow’s meeting. In the alternative case of status quo, the AUDUSD should see little resistance before 0.8000/60.

US jobs in focus

In the US, the attention is on jobs data following last week’s FOMC meeting. To gauge the performance of US jobs market, the improvement in wages will be as important as the jobless rate and the NFPs. As the policy tightening will only kick-off after the Fed is "reasonably confident" that the inflation is on its path to 2% goal and the slack in the labour market narrows, Friday’s NFP read will either confirm the post-FOMC recovery or send the USD back to its recent weakening trend. The consensus for April nonfarm payrolls is 225’000 versus 126’000 a month ago. A second consecutive monthly release below 200K could further damage the expectations that the Fed will start the policy tightening before the end of this year. In this context, the USD direction will certainly be bumpy before Friday’s NFPs.