Ahead of next week, we have the not-so-small matter of the Italian Constitutional Referendum on Sunday. There has been some nervousness rippling through the market, given the broader theme of populism spreading through the world, engulfing the UK and US, while in Europe the ‘far right’ gains in France put Italy’s vote into context.
However, as the polls already point towards a No vote, we expect much of the anticipated bad news to be priced in, and with the EUR holding up well against a USD in full swing. How much of this is down to its oversold status is something we will discover next week, but after some relentless selling, we would not be surprised to see some form of short squeeze at some point.
EUR/GBP may also adjust, but in the wake of EU’s Djisselbloem's comments that UK access to the single market could be accommodated, another fresh bid has been put under the pound, enhancing that of the Supreme Court decision last month. Data-wise, PMIs are the prominent release both sides of ‘the pond’, with UK services traditionally a market mover for GBP, though perhaps less so as the relationship with the EU remains paramount. EU Q3 GDP is also worthy of note.
In the US, non manufacturing ISM is standout on Monday, while the Oct trade data may be of interest as a comparison to the more recent data given post election USD strength. Whether the USD bull run can continue in earnest, will also be of interest after the US payrolls report saw the average earnings number fall 0.1% vs +0.2% expected. The headline number was as expected as the unemployment rate fell to 4.6%, but with the USD index testing the key 100.50 support point, we may be in for the correction many have been expecting in this relentless run higher.
USD/JPY is ripe for a comeback, and with the equity markets retracing alongside US Treasury yields, support levels from 113.00 through to 111.35 will be in focus. Cross JPY rates are also extended, and will follow stocks for the large part.
Among the commodity pairings, AUD may attract the greater interest with Australian Q3 GDP due Wednesday. NZ has delayed its equivalent stats due to the earthquake. CAD outperformance will be tested as some key levels have been tested vs the USD. 1.3250 and 1.3200 are standout, but we have room against the JPY as well as its commodity counterparts.