KBC Market Research Desk
KBC Bank
Payrolls to decide on next USD-move
Yesterday trading started in risk-on modus, temporarily supportive for the dollar. However, the risk on sentiment dwindled during the day and gradually eroded USD strength. USD/JPY dropped below the 120 mark. At first, The dollar held relatively strong against the euro, but finally EUR/USD returned also to the 1.12 area, even as the decline of equities was reversed later in the US session. Short-term interest rates moved also in favour of the US currency, but the intraday link with the performance of the US currency was limited.
EUR/USD ended the session at 1.1195 from 1.1177. USD/JPY closed the day at 119.93, little changed from 119.88 on Thursday.
This morning, most Asian equity markets show moderate losses. August household spending in Japan was stronger than expected, but as usual, had no big impact on the yen. Equities in Hong Kong outperform as Chinese authorities took some selective/target measures to support the economy. Mainland China equity markets are still closed. USD/JPY is trading little changed in the 119 area. EUR/USD trades around 1.1175. All very familiar levels.
Today, only the US payrolls matter. The consensus expects 200 000 net jobs growth. The unemployment rate is expected stable at 5.1%. We see slight downside risk for the September payrolls, but a big upward revision for August. Such a scenario shouldn’t be bad for the dollar. Key question is whether the markets will see the payrolls report was good enough for the Fed to raise rates this year. Fed’s Williams said yesterday that that the hurdle for a Fed rate hike is low (payrolls growth of 100000/150000 is enough to tighten labour market further). Of course, the reaction of equities will affect the dollar, too. Later in the session, Fed’s Harker, Bullard and Vice chair Fischer speak on monetary policy. If Fed’s Vice-chairman Fischer would turn more hawkish, it would be important for the dollar. So, in a daily perspective we prefer a slightly USD constructive scenario. The 1.1105/1.1087 support area is the first reference on the technical charts.
In a broader perspective, the global picture for the dollar (EUR/USD) hasn’t changed. The dollar rebound ran into resistance at the end of last week, but for now EUR/USD is holding the established sideways consolidation pattern.
1.1087/1.1017 looks like a solid bottom for now. 1.1460 is a first interim resistance. 1.1714 is the line in the sand. If the policy divergence between the Fed and the ECB would become less obvious (delay in Fed rate hike expectations), EUR/USD might return toward the topside of this range.
EUR/GBP holding within reach of the range top
Yesterday, sterling trading was driven by technical considerations. The UK manufacturing PMI declined slightly from 51.6 to 51.5 (51.3 was expected).
Cable rebounded to the 1.5180 area on dollar weakness after a disappointing US manufacturing ISM, but returned most of the gains as US equities rebounded later in the session. The pair closed the session at 1.5131, almost unchanged from Wednesday (1.5128). EUR/GBP initially traded with a slight negative bias as EUR/USD hardly profited from receding sentiment on risk. The late session rebound of EUR/USD also brought EUR/GBP back to the 0.7400 area.
Today, the UK construction PMI is expected to rise from 57.3 to 57.5, confirming a good momentum in the sector. A good report might be slightly supportive for sterling, but the market reaction to this indictor is usually very modest. The services PMI to be published on Monday has more market moving potential.
From a technical point of view, EUR/GBP is still trading in the upper part of the trading range which is marked by the 0.7423/0.7483 boundaries. The 0.7423 was extensively tested, but no sustain break occurred. Trading north of 0.7483 would deteriorate the sterling short-term picture, which is not our preferred scenario. Even so, partial stop-loss protection on EUR/GBP shorts can still be considered.
This non-exhaustive information is based on short-term forecasts for expected developments on the financial markets. KBC Bank cannot guarantee that these forecasts will materialize and cannot be held liable in any way for direct or consequential loss arising from any use of this document or its content. The document is not intended as personalized investment advice and does not constitute a recommendation to buy, sell or hold investments described herein. Although information has been obtained from and is based upon sources KBC believes to be reliable, KBC does not guarantee the accuracy of this information, which may be incomplete or condensed. All opinions and estimates constitute a KBC judgment as of the data of the report and are subject to change without notice.
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