Daily FX Wrap: Post ‘election’ Monday proves to be a damp squib, as EUR fades gains, but modestly so as yet. AUD still pressured, as metals lag. GBP holding up ahead Super Thursday, but jitters may start to tell.
After an uneventful Monday session, which was largely met with relief on Emmanuel Macron’s victory in France, we look to a modest pick up the data schedule, but little of note in the US other than some second tier optimism indices which are largely discarded in preference of hard data.
To that end, Friday’s jobs report was all but convincing either way, and while some point to the positives, not least of all headline gains and wage growth, comparisons in the longer term averages and productivity have to be measure against this. This has been borne out in the near term stasis in US Treasury yields, which keeps USD/JPY hemmed in the mid 112.00’s, but the market looks intent on retesting 113.00, with the risk landscape calmed by the outcome in France.
JOLTS due out later in the day, but garners little attention unless we get any significant deviation against the average.
EUR/JPY looks to be the more obvious choice to test higher, especially if Japanese investors have been holding back, but we have also seen a modest pullback in EUR/USD, largely on profit taking on the pre-emptive buying on what as very small gap up first thing Sunday. Back the domestic fundamentals, and we have little other than German trade stats tomorrow morning. At the present time however, there seems to be a strong underlying bid in the single currency, and more so against the USD, as longer term investors are looking favourably on the recent run of data.
Inflation readings have also picked up, but at a time when oil prices have turned sour again. OPEC and non OPEC members are upping the ante in terms of their supportive rhetoric on extending the output cut into H2 of this year, but traders look to be testing their resolve with WTI struggling for upside momentum from the sub USD44.00 lows seen last week. USD/CAD has retested above 1.3700, but seems tentative as yet.
The Canadian jobs report on Friday saw a very modest rise in the headline, but with inflation and wage growth soft, the undervalued CAD will need some momentum in the GDP pick, which somewhat stumbled in Feb, but PMIs have been encouraging. Housing starts today saw a slightly better than expected rise, building permits tomorrow.
In Australia, we have retail sales for Mar and Q1 in the overnight sessions as well as NAB business surveys. AUD trade has been squarely on the back of the drop off in base metals, impacted by the downturn in China PMIs as well as reports of iron ore stockpiles at Chinese ports. Despite the modest AUD/USD climb above 0.7400, we look destined to test for lower levels, and this will be exacerbated by a copper move below range support in the USD2.45-50 area.
AUD/NZD losses have contributed to pressure also, along with AUD/CAD, but the former could see more downside ahead if the RBNZ strike a less dovish tone on the economy in light of the better than expected pick in jobs as well as stability in dairy prices.
Finally in the UK, the recent ‘contention’ between the UK and EU does not seem to be harming GBP to any notable degree, as consistent buying of cable has pushed the pair close to 1.3000. Approaching this key level ahead of Super Thursday may prompt some near term profit taking as economists suggest the MPC may tame their hawkish leaning, in light of the latest GDP stats and more so now that exchange rate pressures may ease up (GBP up circa 5% since the last BoE) on expectations of an inflation overshoot. EUR/GBP is trading sideways in the meantime, but notable has been the resistance through 0.8500.