So far this week its been a generally sideways show for all the major currencies. The pound
seems to have run into some decent selling around 1.32 and fallen back again, below 1.31 as
the markets continue to try and extrapolate the meat from the potatoes on Brexit- more on
that at the end of this update.
The dollar has continued to tread water with the EURUSD holding its characteristically tight
range again and this week that appears to be anything you want it to be inside 1.1200-
1.1250. However, the latest economic news from Europe in general and Germany in
particular has been alarmingly weak again.
The March Eurozone CPI data earlier in the week missed the mark to the downside and only
yesterday morning the February reading of German factory orders dropped off a cliff, falling
by a whopping 4.2 % on the month and down over 8% on an annualized basis. Doubtless
some analysts will still try to spin a positive out of those numbers, but I certainly can’t.
Perhaps one reason why the EURUSD has held its ground and the USD index has continued
to hold below that important 97.71 breakout level is probably down to the pound and in
terms of the EURUSD, surely more about a rebound in the EURGBP over the past 24 hours.
Beyond that there’s almost certainly some of the usual reserve manager suspects still
soaking up EURUSD supply at the lows and to a lesser degree, the EURJPY too it seems.
A dovish policy message from the RBA sent the AUD lower earlier in the week, only for it to
rebound just a day later following much better than expected retail sales and trade data.
That has led some big players to turn long on the AUD now and more especially on the
AUDNZD. The US investment banking giant, Goldman Sachs is calling for that cross to head
back towards 1.09 from cited levels around 1.05.
Meanwhile, the equity markets have continued to push ahead despite further warnings and
downgrades to the 2019 global growth outlook from a number of quarters. However, none
of those have yet dented enthusiasm for equities and the move higher in that space might
in part be down to continued optimism over a US/China trade deal.
Possibly, it’s more likely linked to the charge higher in oil prices this week. I can refer you
back to an article I wrote on December 7th which is on the website, where I outlined just
how closely correlated the equity markets are to Oil prices. Looking at what has taken place
so far this week that might better explain the move in stocks.
Later today at 1.30pm we will find out just how many jobs the US economy added in March.
The ADP report earlier in the week certainly didn’t portend to anything special, but lately
those numbers have been inconsistent at best. Beyond that, the markets will be watching
the wage inflation data closely as usual and looking out for any sizeable revisions to
previous payroll numbers. Ahead of this the dollar is certainly still poised to breakout to the
upside.
The question is; can it do so if there’s a robust employment report today? Personally I think
if all things were equal and we do get a good report then it should, but it just depends on
who is standing in the way of it doing so and furthermore what, if any stops reside south of
1.1175 on the EURUSD. On the flip side of this; two weak monthly US payroll reports in a
row will not do the dollar any favours.
Finally, today a word about the pound. Both the GBPUSD and EURGBP are showing signs of
GBP stress again and given the developments this week that’s perfectly understandable. The
Bank of England issued grave warnings as have many on the continent about the increased
risks of a no deal Brexit.
I suppose that is a major problem for May and Corbyn, as they seek to find some last minute
middle ground because time is fast running out for them to do that. Previously, all the
comments from the EU suggested that the can would not be kicked down the Strasse again
and April 12 th was the final make your mind up time.
However, this morning according to newswire reports, the EU is preparing to offer the UK a
flexible 12 month A50 extension. Well, if there’s any truth in that then its hasn’t yet had
much of a positive impact on the pound. I think the simple reason for that is any lengthy
delay will require the approval of all the EU 27, and even then it will not solve the political
uncertainty. After all a year is plenty of time to hold a general election isn’t it?
Important Economic Releases Due later today
05/04- 1.30pm Canadian March Unemployment Report
05/04- 1.30pm US March Unemployment Report