- We do not expect the cable to continue to move lower as we consider yesterday's sell-off a necessary adjustment given the optimistic view of the market, even if today's US NFP adds some further pressure on the pair
- Expectations for a net improvement in US job market are very high and the risks are to downside for the US dollar
Yesterday, the pound sterling was under heavy selling fire after the market interpreted the BoE announcement as dovish, or I should say as less hawkish than expected. As anticipated, the MPC voted by a majority of 8-1 to leave the rates unchanged at 0.50% but also cut growth and the inflation forecast. Governor Carney announced that the bank has lowered its growth forecast for 2016 from 2.6% to 2.5% and took a dovish stance on the inflation outlook. The Committee trimmed the inflation forecast for Q4 2015 to 0.1% from 0.3% in August and from 1.5% to 1.2% for Q4 2016. GBP/USD dropped 1.20% to 1.52 in New York yesterday before sliding slowly below the key support standing at 1.52 (low from October 13th) in Tokyo. On the downside, a strong support can be found at 1.5108 (low from October 1st). We do not believe the cable will continue to move lower as we consider yesterday’s sharp sell-off was a necessary adjustment given the overly optimistic view of the market. However, today’s NFP could add some pressure on the pair if the market interprets a strong read as supportive of a December rate hike by the Federal Reserve. EUR/GBP also got its fair share of volatility as the single currency appreciated to 0.7160 against the pound sterling, up 1.35% on Carney’s remarks.
EUR/USD spent the New York and the Tokyo sessions moving sideways between 1.0858 and 1.0897 as investors adjusted their positions before the much-awaited October NFP report. After a couple of disappointing reads, the expectations for a net improvement in the US job market are very high and risk is mounting to the downside for the greenback. The median forecast stands at 185k for October NFP, versus 142k in September. EUR/USD stands in the middle of its multi-hourly range and continues to trade above the 1.0848 support level implied by the low from August 5th.
On the equity front, Chinese mainland shares rallied for a third straight day after a mixed session in Europe and Wall Street. The Shanghai Composite was up 1.91% and the Shenzhen Composite rose 2.82%. In Japan, the Nikkei was up 0.78% and the broader Topix index gained 0.55%. In Europe, futures are pointing towards a lower open for most equity indices. The DAX is down -0.18%, the CAC -0.10%, the SMI -0.01%, while the Footsie is up 0.20% after yesterday’s sell-off.
Today’s main event is release of the October job report from the US but we’ll also get industrial production from Norway; manufacturing and industrial production as well as the trade balance from the UK; IPCA inflation report from Brazil; building permits and unemployment rate from Canada.