Global Themes

Dollar wobbles ahead of US jobs report
- Will US NFP prop or drop the dollar?
- The calm before a Sterling storm?
- Oil prices tank; OPEC talks resume 
- Euro searching to retake $1.14

USD

Will US NFP prop or drop the dollar?
US non-farm payroll data, unemployment and wage data are due for release at 1:30pm today. Non-farm payrolls are expected to rise by 200k in November, lower than the 250k last month but still a strong figure if it meets or beats. The unemployment rate is predicted to remain at 3.7% and average earnings are expected to have risen 0.3% from 0.2% m/m due to tighter labour market conditions. The annualised rise is forecast to remain steady at 3.1%, which last month was the biggest gain since April 2009.

The labour market has been a strong part of the US economy this year and helped buttress rate hike decisions by the US Federal Reserve (Fed). The dollar has triumphed against most of its major rivals as a result, but investors are beginning to get spooked. The recent sharp fall in US Treasury yields and the possible inversion of the 10-year being a signal of economic slowdown, has left traders pondering over the pace of future US rate hikes.

The jobs report today could be pivotal for the US Currency, opening the door to further downside risk if it disappoints or giving it a boost if it comes in strong. The US Dollar index, measuring the strength of the dollar against a basket of currencies, is currently under pressure, falling back below the 97 mark.

GBP

The calm before a Sterling storm?
The likelihood of a no-deal disorderly Brexit looks slim. The UK and European Union (EU) have widely expressed concerns about such a situation, not to mention the Bank of England’s alarming economic forecasts including Sterling potentially plunging 25%. As we draw closer to the crucial parliamentary vote next Tuesday though, there is a risk the pound could start to depreciate further as the uncertainty over what happens next will begin to unnerve investors. There is an abundance of scenarios that could play out, most of which leave Sterling weaker due to the political turmoil that is expected to follow. It is the extreme cases though, such as exiting without a deal or even reversing Brexit completely, that could flare up significant volatility for the pound.

Sterling has reacted positively in the past to rumours of a soft Brexit scenario and more recently with the possibility of a second referendum. Prime Minister Theresa May has warned Eurosceptic MPs that voting against the current draft deal could result in no Brexit at all. The recent chatter on this matter has hoisted Sterling from the doldrums, allowing GBP/USD to challenge $1.28, though this move was amplified by recent dollar weakness. GBP/EUR remains afloat the €1.12 handle, trading relatively flat throughout this week.

The House of Commons takes a day off debating the Brexit deal today, with the fourth day scheduled for Monday.

OIL

Oil prices tank; OPEC talks resume
The Organisation of the Petroleum Exporting Countries (OPEC), Russia and other oil producers failed to reach an agreement on production cuts yesterday, which sent the price of a barrel of West Texas tumbling back towards the critical $50 mark. The commodity sensitive Canadian Dollar continues to feel the weight of falling oil prices and the cautious tone set by Bank of Canada Governor Stephen Poloz added to the dollar’s depreciation.

It seems Iran is the main obstacle blocking an OPEC output deal as the country is seeking exemptions form the proposed cuts due to US sanctions. Russia also remains on the fence about cutting production, which has dragged oil prices even lower this morning. Talks resume today as traders wait in anticipation for a final decision.

EUR

Euro searching to retake $1.14
The Euro has put up a good battle against the US Dollar over the past few weeks, preventing a sustained slide to below the $1.12 level. The recent recovery back above $1.13 has left the pair rangebound between this level and $1.14, searching for some directional impetus. Today could spur a big move if the Eurozone’s final Q3 GDP beats the expected 1.7% y/y forecast. This is unlikely though considering the recent string of poor economic data from the bloc. A climb above $1.14 could still be on the cards though should the dollar weaken on growing concerns about the pace of US rate hikes.

Developments around the Italian 2019 budget will also play a key role in Euro strength, with the Italian government expected to submit a revised version to the EU at some point next week.




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