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Our view for this week remains that data has the most potential to steer US dollar crosses, and today’s busy US calendar offers a couple of opportunities. ADP payrolls will be watched closely given the delay in official data, alongside the ISM services survey. Our call is that decent-enough figures could take EUR/USD back below 1.180 in the next couple of days
USD: ADP and ISM Services in Focus
The dollar rally is giving back some of Monday’s gains, but volatility has continued to decline. Our view remains unchanged: data will set the tone for the next move in USD crosses. Today’s calendar includes a couple of releases that could act as catalysts.
First, ADP payrolls, which will offer the best read on January labour market conditions given the postponement of official figures (we believe by about a week, as the government shutdown ended yesterday). Consensus for ADP is 45k, which should help build confidence in an equally decent official payroll figure. Considering the Fed’s more hawkish stance at the January meeting, some clear deterioration in the jobs market would be needed for a cut to be priced before June.
ISM services are also due today. Consensus is upbeat, expecting a near one‑point increase to 54.4. Recall that a strong manufacturing ISM on Monday prompted some decent dollar gains.
We see the balance of risks slightly tilted to the upside today, as positive data could act as a catalyst for a bit more USD recovery amid an already supportive macro backdrop relative to spot levels.
The fact that the dollar didn’t suffer yesterday from the US tech selloff is an indication that – while its safe haven value is still diminished – market jitters about a US-driven USD selloff have eased significantly.
EUR: We Expect a Return Below 1.180
The last data input before tomorrow’s ECB meeting (preview here) is today’s eurozone flash CPI estimate for January. Yesterday’s surprise drop in French inflation left little to no mark on FX, and we doubt today’s eurozone-wide figures have much impact potential. Anyway, expectations are for a slowdown from 1.9% to 1.7%, with core unchanged at 2.3%. Nothing there to trigger a meaningful change of tone by the ECB tomorrow, in our view.
EUR/USD has climbed back to 1.183, meaning it’s now trading around 0.8% above its short-term fair value in our calculations. If we are right to think US data should be relatively good today, we can see some pressure to trade back below 1.180 in the next couple of days.
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