Market situation pre US NFP
It’s a big day for the US dollar from a fundamental perspective and if we see deviations from the expected levels, we could see major repositioning in the markets. At 1430 CET, we have a string of figures released. The US job report for May will be key, where the nonfarm payrolls are expected to come out at 150k vs. 115k prior and the unemployment rate is expected unchanged at 8.1%. Should the level come down to 8.0%, keep in mind the US job participation rate.
In addition, we have the monthly figures for the personal income and spending as well as the PCE figures for April. Later in the day, US ISM manufacturing will be important. The market is expecting a slight drop to 53.8 vs. 54.8 prior. Overall a very interesting day, which will gauge the potential growth and inflation in the US.
Throughout the week, the US dollar has been bid and the US-index (the DXY) is up a little more than one per cent this week, indicating that market participants are fleeing to safer havens. The US dollar is still the currency of choice in that regard. As investors are reducing their riskier positions in equities, they place positions in bonds such as US treasuries, which is clearly seen in the US generic 10-year future, taking out the 135-level for the first time ever. As the Fed has been cautious about mentioning further quantitative easing, the markets are continuing their risk-off mode.
If we generally have positive figures from the US (NFP and ISM better than expected and PCE remains at ease), then we could see an equity-driven rally, which should make the US Dollar offered and EUR/USD should climb back to 1.2370-1.24.If the opposite occurs, we expect the current risk-averse market theme to continue and EUR/USD could print new 2012 lows. Keep in mind, that the referendum on the fiscal treaty in Ireland will have an impact on the state of the Euro. Of course a ‘yes’ has already been priced in, so the risk is to the downside, should the outcome be a ‘no.’
An interesting opportunity is present in the USD/CAD as Canada is releasing GDP figures at the 1430 CET - same time as the US. USD/CAD has been bid since the end of April and should we see the risk-off theme continue along with disappointing figures from Canada, the pair has potential to breach current resistance at 1.0425.
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