A combination of improving US economic data and a confident sounding Fed steering a steady path to a June rate hike has provided the market with some food for thought overnight.
On the US economic front, the ISM Non-manufacturing index rebounded from 55.2 to 57.5 in April, beating consensus at 55.8 while the ADP printed 177k for April, slightly above consensus, inspiring the dollar bulls in early trade
As expected, the Fed delivered a rather benign statement and while acknowledging growth had slowed, they recognised this as transitory, and said labour trends were expected to strengthen further in 2017.
Japanese Yen
USDJPY continues to trade constructively, despite lacking any spirited upside momentum.Overnight the pair was steadily bid on the stronger US ISM print, but the improving employment trends comment in the FOMC statement provided the catalyst to push the pair to 112.75. Barring any unexpected shock, we should see the greenback supported until Friday; then we should expect the markets to move on the NFP report, especially the wage growth component. Also, the markets are keying on Fed speak later that day hoping that Yellen and Fischer will provide more detailed forward guidance on policy at that time.
Australian Dollar
Commodities are once again in the driving seat of the Australian dollar, indicating the signals generated by the sliding CRB Commodity Index of commonly traded commodities were sound in spite of all the questionable noise surrounding this week’s RBA event. Base metals laboured overnight, and after seeing Chinese and Australian equity indexes trading heavily, London walked in and hit the sell AUDUSD button.
But the Aussie dollar slide started early yesterday in part driven by an interest to sell AUDNZD after a bumper New Zealand Q1 jobs report and then was hammered mercilessly lower after a 6.5 % slide in iron ore with copper down over 3 % and the gold technical floor giving way. The weaker China Manufacturing PMI print this week has stoked fears of China growth slowing which is fueling further downside momentum for the entire commodity complex.
The AUDUSD remained offered leading up to the FOMC, and the convincingly hawkish tone from the FOMC did the Aussie bulls few favours, as there was renewed interest to sell the Aussie late in the NY session.
If you trade the Aussie from the three C’s perspective (Commodity, Carry, China), with all three signals pointing lower for AUDUSD it's more likely we will see a test of .7400 as opposed to a retracement to .7500 in the near term.
A convincing break of the .7400 level will send Aussie longs running for the exit and could add more fuel to the downside momentum
Euro
The single currency continues to trade sideways, ahead of the key French vote on the weekend with dealers likely willing to fade either side of the moves through 1.0850-1.0950. In all likelihood, barring any surprises, we’re probably going to straddle 1.0900 at week's end. Getting some air time on market chat rooms was Reuters' latest survey of 65 strategists on theEUR, while the general smorgasbord predictions were on offer for the plight of the EUR, one part of the study most are buying into is how to view the post-French election fallout. Most see a 1% gain on a (highly expected) Macron victory versus -5% loss on Le Pen. Reuters adds:
“Analysts were split on what margin Macron needs to win by for their forecasts to hold, with the range varying from as little as five percentage points to more than 20%.”
EM Asia
The dollar bulls are holding court today with the Fed convincingly steering the market to a June rate hike. Post-China Manufacturing PMI jitters continue to resonate while the slide in global commodity prices has weighed on regional sentiment overnight
Gold
For the ASX miner, the question now is how low gold can go? Gold could eventually move below $ 1200 on a combination of improving US economic data, higher US interest rates and easing geopolitical tensions. Near-term risks are skewed to Friday’s US employment report and Fedspeak. A positive outcome for the wage component in the NFP release and a confident sounding Yellen and Fischer will likely see XAU test the 1225 level heading into the weekend
WTI
The DoE inventory report disappointed oil bulls after the US Energy Information Administration (EIA) said weekly crude stocks fell by 930,000 barrels to 527.8 million. That was less than half the forecast draw of 2.3 million bpd. And WTI saw a knee-jerk reaction from $48.00 to $47.30 on results but has since recovered. But I think more importantly with commodities driving some G-10 currencies, the statement from Saudi oil ministers indicated that oil would be kept in a range from $45 – $55 per barrel and if usual trends remain intact, that means the markets will have a greater propensity to test the base range resolve as opposed to the upside. So I would expect sellers to remain dominant near-term
French Pre-Election Debate
The rancorous French pre-election TV debate had little influence on markets as 63 percent of viewers found Macron more convincing than Le Pen in the discussion, according to a snap opinion poll by Elabe for BFMTV. This supports the market’s view that Macron will win Sunday's ballot. Clearly, Le Pen's europhobic stance is not winning any favours with the undecided vote.