Its been a busy few hours on the fundamental news calendar with the overnight retail sales figures in Australia helping to reverse the bullish momentum for the Aussie dollar, despite better than expected Building approvals, with the former bad news outweighing the latter good news story! This was followed by the Services PMI data in the UK which came in slightly worse than expected at 57.7 against a forecast of 58.1 and denting progress in the UK pound, with both major currency pairs also reversing following a minor reversal in sentiment for the US dollar, which has reclaimed the 80 level on the dollar index chart, with the 79.70 area providing some much needed support. In the next few hours we have a raft of key economic data, which is likely to set the tone for next week’s trading, given the holiday in the US markets tomorrow.
First up comes the ECB with Draghi now under pressure and seen as lacking any coherent strategy to manage the spiral into deflation as the Eurozone enters the world of negative interest rates. The forecast is for rates to remain on hold at ultra low levels, and as always it will be the subsequent ECB statement which will hold the market’s attention. This is then followed by the Trade Balance in Canada with a forecast of -0.3B against last month’s -0.6B, and should this downwards decline be confirmed, or even a move into a positive balance, then this should help to provide some further upside momentum for the Canadian dollar, despite the fact that it is now moving heavily into overbought territory on the daily chart. As a major exporter, over 70% of Canada’s export market is to it’s nearest neighbor with currency flows directly linked to export demand, and reflected neatly in the USD/CAD pair.
Finally we come to the ‘stand out’ item, the monthly Non Farm Payroll release due at the same time. The forecast this time around is for an increase of 214,000 jobs, a very modest increase on last month of 3,000. As everyone is painfully aware, these figures are meaningless given the parlous state of the US economy, and the ‘true’ figure of over 20% in terms of the headline unemployment rate. No doubt this will once again be reported as a reduction and ‘good news’ for the US, with 6.3% the forecast for today! However, as always, these are the numbers that the market considers to be important, whether they are true or not! As we all know it is the participation rate which is still at an all time low. Whilst the ADP release yesterday was encouraging, the once close correlation between this and the NFP data have fallen out of step over the last few months, and whilst suggesting a positive number in prospect for today’s NFP data, a near miss, given the summer period, would be no surprise, and an over shoot by a similar percentage seems highly unlikely.
Today’s trading session is completed with the ISM non manufacturing release 90 minutes later, with the reverberations from the NFP no doubt taking centre stage, with any effect likely to be muted as a result.
By Anna Coulling