USD in consolidation modus

On Wednesday, the dollar was in consolidation modus. In technical trade the US currency slightly lost ground against the euro and the yen, but the moves were not really significant. There were few eco data with market moving potential. Equities/global market sentiment also failed to give a clear guidance. EUR/USD closed the session at 1.0743 (from 1.0724). USD/JPY ended the session at 122.86 from 123.15 on Tuesday evening.

This morning, Asian equities show a mixed picture with mainland China underperforming. Most other indices are little changed. The Australian labour market report did beat the consensus by a wide margin. The employment grew by 58 600 in October (only 15.000 was expected) and the unemployment rate declined from 6.2% to 5.9%. The report questions the need for further RBA easing. The Aussie dollar gained almost a full big figure against the US dollar. AUD/USD trades currently in the 0.7140 area, even as global commodities stay under downside pressure. EUR/USD trades with a slight upward bias, changing hands in the 1.0755/60 area. USD/JPY hovers slightly below the 123 big figure.

Later today, the calendar in Europe and in the US is again only moderately interesting. The EMU industrial production is expected at -0.1% M/M and 1.3% Y/Y. The figure is no market mover for currency trading. In the US, the weekly jobless claims and the JOLTS job openings will be published. These data are usually only of intraday significance for USD trading, at best. So, the focus for global currency trading will remain on global market sentiment and on central bankers’ speak. Yesterday, ECB’s Coeure in an interview was quoted saying that the risks for growth and inflation are currency still to the downside, but that the debate on further ECB easing is open. European bond yields remained on a downward trajectory but had no negative consequences for the euro anymore. Today, several Fed members will give their view on the monetary policy and/or on the US economy. Fed’s Yellen will speak too, but it’s doubtful that she will address monetary policy issues.

So, there are no obvious clues for USD trading today. In a day-to-day perspective, it looks that the dollar is ripe for some consolidation or maybe a limited technical setback after the recent rally. However, high and still rising bond yields differentials between the euro and the dollar will probably continue to cap the topside in EUR/USD. USD/JPY is drifting off the recent highs, but the correction on the equity markets remains too small to inspire a really big setback in USD/JPY. In theory, declining commodities might be a slightly positive for the dollar, but we don’t have the impressive that the link between the dollar and commodities is that tight short-term.

In a broader perspective, short term interest rate differentials widened in favour of the dollar, pushing the US currency higher against the euro and the yen. EUR/USD dropped below the 1.0809 support and reached the targets of the multiple top formation (neckline 1.1087/1.1105) in the low 1.0715 rea. With policy divergence between the Fed and the ECB (and to a lesser extent also the BoJ) still in place, we don’t row against the USD uptrend. However, quite some good (interest rate) news is already discounted. So, the pace of the USD rally may slow. The post ECB QE lows in EUR/USD (1.0521/1.0458 area) are obvious targets on the charts. We hold on to a EUR/USD sell-on upticks strategy for a retest of the cycle lows. For USD/JPY, the cycle tops in the 125.28/86 area come on the radar, but a (sustained) break won’t be easy short-term.

Sterling well bid despite mixed labour market report

On Wednesday, The UK labour market report painted a mixed picture. Job growth was better than expected and the unemployment rate dropped unexpectedly to 5.3%. On the other hand, wage growth was again slightly disappointing. Sterling initially didn’t really know which way to go, but finally the UK currency succeeded a gradual intraday uptrend against the euro and the dollar. EUR/GBP closed the session at 0.7062 (from 0.7094). Cable ended the day at 1.5213 (from 1.5119 the previous day ).

This morning, the RICS house price balance rebounded to 49 from 44 (45% was expected). There was hardly any positive reaction for sterling. Even so, the report might help to put a floor for sterling later today. There are no other important UK eco data, but BoE’s Haldane will speak today. One can expect him to be on the soft side.

Looking at the broader picture, the soft tone at the ECB press conference pushed EUR/GBP again lower in the longstanding sideways range. The pair tested the 0.7196 support and the level was ‘really’ broken after the FOMC announcement. A retest occurred last week after a soft BoE inflation report, but the test was rejected. We maintain a sell-on-upticks approach for EUR/GBP.

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