Limited Volatility ahead of Tomorrow's NFP Report; Pound in Recovery Mode

Wednesday has limited macroeconomic updates to trigger volatility in the market. Most traders are expecting tomorrow’s U.S. NFP report to gauge the direction of the market. The dollar and the single currency were slightly changed against the majority of the G10 currencies while the sterling inched higher. The U.S. stocks continue to be in a bullish mode, recovering from last year’s choppy session.

Fed’s Beige Book Revealed Weakness Across the Regions; ADP Surpassed Expectations
The greenback plunged against the British pound, the Australian dollar, and the New Zealand dollar on Wednesday despite the better than expected ADP Employment Change two days ahead of the Non-Farm Payrolls report. The private sector added 241k jobs for February, above expectations of 190k! The Fed’s Beige book released yesterday revealed that even though the U.S. economy expanded in 2016 as a total, the conditions across regions within sectors varied considerably. In some regions, the economic activity slowed down. This is an added headache for Fed policymakers that have to decide when it will be the next rate hike.

Euro remains in range ahead of U.S. Non-Farm payrolls report
The shared currency recorded significant change only against the Australian dollar, the Canadian dollar and the Japanese yen, while it remained marginally unchanged against the other major currencies. The only macro-economic update was the producer price index for January that plunged by 1.0% worse than market consensus of -0.7%.

The EUR/USD pair posted little daily volatility compared to the recent trading days despite some interesting macroeconomic statistics coming out from around the globe. While the ADP Employment Change was very favoring for the greenback, the weekly MBA Mortgage applications were worse than expected and that what kept the pair in a tight range. In addition, some traders preferred to remain on hold until seeing the Non-farm Payrolls figures, given its importance of the NFP in shaping the Fed’s monetary policy. The levels to watch are pretty much the same as after a choppy day the pair remains under pressure below the 1.0950 level.

UK Construction sector slowed down to 10-month low
The British Pound gained ground versus the G10-basket on Wednesday and recorded the fourth positive day in a row against the dollar. However, the fundamental data came out was not positive for the British economy. The UK Contraction PMI that measures the business activity across the sector fell unexpectedly to 10-month low. The index dropped for the second consecutive month at 54.20 from 55.5 expected. Following the poor as well Manufacturing PMI released on Tuesday today’s Services PMI will be closely watched!

The pound has reversed directions against the euro and posted some gains on Wednesday, recovering the losses from the previous week. The EUR/GBP pair is plunged below the 0.7900 level, extending its losing days to three. The weekly 200-SMA has provided a strong resistance to the price action near the 0.7940, which coincides also with the monthly 50-SMA. The medium-term charts generally look quite positive for the euro, but a return to the downside would see some sellers at the previous 0.7685 level, below which would allow a run to the significant level of 0.7600.

Australian dollar inched up on Contracted Trade Deficit
The Australian dollar trade deficit contracted to $2.94 billion in January, better than market expectations of $3.22 billion. Exports rebounded from a weak number in December and imports continued to decline, however, the country’s external accounts remain under pressure along with the other commodity economies.

AUD/USD extended is losing streak to four days on Thursday and in the process broke and closed above what had been a key support region throughout January and February. Few days ago, we have suggested as a target the 0.7215 level and a day later the pair surpassed that level, following the better than expected GDP data which came out from Australia (https://bitly.com/a/bitlinks). Furthermore, we have suggested that the level to watch, as a turning point was the 0.7258 – 0.7260. During the Asian session, the pair gained momentum after the trade balance published and surpassed the aforementioned level, ending the Asian session above 0.7300. We remain bullish on this pair with the target being the 0.7385 barrier.

Gold - Technical Outlook
XAU/USD has been choppy and fairly directionless as it remains in the ascending triangle, which started back in mid-February. Therefore, it leaves the outlook unchanged for now ahead of the all-important U.S. NFP report. U.S. Non-farm Payrolls are estimated to have risen by 190k in February after increasing by 151k in January. The yellow metal which has gained nearly 18% this year to be among the top performing commodities, was trading not far below a one-year peak. For now, I would expect the precious metal to be around the $1,260 level until Friday when the U.S. NFP is due to release. A negative impact could push the metal towards the $1,300 level, which I expect to hold, at least for now.

U.S. Indices Rose for the second straight day
The U.S. indices closed the second consecutive day of gains on Wednesday but not as aggressive as the day before. On the long-term view, the indices are looking to recover the choppy session suffered in 2015. Dow Jones rose by 0.20% at 16,899 dragged upwards by Exxon Mobil Corporation (NYSE: XOM) that surged by 1.75%. Nasdaq added 0.29% to its values and ended the day at 4,703 while the S&P500 picked up to 1,986 by 0.41%. The energy sector inched significantly higher by 2.45%.

Economic Indicators
The Markit Services PMIs will complete the composite indexes. Eurozone’s and Germany’s services sectors are expected to remain unchanged while in UK the sector’s index is predicted to decline to 55.1 from 55.6 before. The retail sales in the 19-nation union are expected to have slowed down in January to 0.1% from 0.3% mom. At the European noon, the Markit Services PMI for February and the ISM Non-Manufacturing PMI will be released.