US NFP & The Dollar Index , Soft Brexit Or No Brexit, OPEC The Critical Number

The US NFP is the most important economic number for traders and they like to dissect this number into smaller pieces in order to have a better understanding of the health of the labour market. 

The dollar index is set for a weekly drop ahead of this critical report. The weekly drop in the dollar price is mainly due to some qualms that hiring may have eased off over in the U.S. But, we do think that the downside may be limited for the dollar index from here and the greenback may start to consolidate around its current level (trading range between 95-97). Year-to-date; the dollar index is still up nearly 5.19% which is far stronger performance than any equity market in the developed countries.

The ADP data usually sets the tone for the US NFP number and it confirmed that the private payrolls number jumpted to 179K last month missing the forecast of 195K. The ISM manufacturing PMI released earlier this month painted a more optimistic picture as it came ahead of the forecast (actual 59.3 vs forecast 57.5) and this is despite the fact that trade war has dampened the outlook. 

As for Brexit, softer Brexit is still a likely scenario because it is widely expected that Theresa May’s deal will fail in the UK parliament vote on Monday. However, she has another plan; buy more time to avoid the humiliation in the parliament. The Brexit vote may not take place in parliament on Monday as her Tory allies have advised her to postpone the crunch vote. A defeat in the parliament would trigger fresh attempts to topple her government. So, the likely scenario for her is to re-open the negotiations with Brussels and start a conversation around a better deal which may be backed by the parliament.

So far she has denied the possibility of delaying the vote and this has kept the sterling traders on the edge. We are still holding the critical support level of 1.27 against the dollar, however, this support is under threat. 

Back in the commodity market, OPEC will pick up things where they left off yesterday. No decision was made yesterday in relation to the production cut as the cartel was still discussing the outcome. For the first time in five years, the cartel has been unable to decide on the oil production cut because Russia has decided to flex it’s muscles. The problem is that not everyone is on board in relation to the production cut and most importantly the quantity of the cut. Then on top of this, Saudis are under pressure from President Trump as well who has made one thing very clear; he doesn’t support any production cut, he wants the taps flowing.

Nonetheless, I think that one million barrels per day is the number which is priced in the market so far. If we see production cut over 1.4 million b/d, this could bring some spike in the oil price. Crude price could jump from it’s current level of $51 to $55. As for the other side of the coin, anything less than a million could support the bear case and the price could drop to $45.