The NFP on Friday was slightly better than expected, so that means that the road is clear for the FED to raise the interest rate next week. This is especially true since the unemployment surprisingly dropped to 4.6%. The only downside is that wages didn’t grow at all, but this alone will not be enough to postpone a rate hike.
Back in Europe, the Italian referendum ended in a defeat for Prime Minister Renzi, which was expected in most polls, although the size of the defeat was larger than foreseen. The result led to the Prime Minister to offer his resignation, as he had said he would do in case of a loss.
Currencies
EUR/USD – due to the result of the Italian referendum, the EUR dropped to the lowest level in nearly 2 years. It will try to base itself above the support just above the 1.05 level, but the direction is south, at least for now. The main reason for a change would be a change in the policy of the ECB this week, but with the wide held expectation that the ECB will extend QE, this doesn’t bode well for the EUR.
USD/JPY – moved down in the morning as there is some more uncertainty in the market following the events in Italy and New Zealand, but especially the result in Italy didn’t come as a huge surprise.
GBP/USD – reached the highest level after the flash crash back in October. The data out of the UK has been relatively strong and worst was feared after the Brexit vote. With the comments last week that it could be possible that the UK will continue to have access to the European single market, a lot of fears are fading away.
USD/CAD – is trying to find support around the 1.3289 level as the data out of both the US and Canada was strong on Friday.
NZD/USD – moved down after Prime Minister Key surprisingly announced that he would resign. However, the reaction is fairly limited so far and most of the losses have been pared.
Indices
Dollar Index – once again moved down to test the support on Friday, and this level proved to be able to hold again.
DAX 30 – even though it opened lower on the backdrop of the Italian referendum results, it is moving up ever since the open. The decision by the ECB this week regarding QE will be an important factor on the direction of the DAX.
Commodities
Gold – remains under a lot of pressure, and is unable to make any real sustained gains as the USD remains strong, even though there is some more insecurity in the markets.
Oil – once again reached the resistance level, and once more was unable to break through. After OPEC reached an agreement, focus will shift to non-OPEC countries as they will also need to commit to the necessary cuts. While Russia has already said it would cut up to 300K bpd, other countries will need to join. A failure could jeopardize the whole deal as we will also be waiting to see if the agreement will actually be implemented and upheld. In the US the number of active rigs continued to increase, which means that we are expected to see a further increase in US production.