USD rally somewhat halted after “disappointing” non Farm Payrolls (+209k vs +270k) and the unemployment number rose from 6.1 to 6.2%. All in all this caught traders by surprise given the superb GDP number (+4%) earlier this week.
If you remember what I wrote a few weeks ago, I kept going on about how we felt the USD was due a spot in the limelight. OK I raise my hands and admit I got the timing a little wrong but at least the thought and view was there. I remain confident that the USD will continue to drive higher (vs the majors) given the bounce we have seen recently in economic numbers. We knew after FED Gov. Yellens’ recent comments that they were looking very seriously about the timing of the next rate hike. All in all these numbers just add fuel to the fire and reinforce our view that the hikes (incl the BOE) will happen sooner rather than later. Inflation and stagnation remain a thorn of course, but a thorn that is becoming less of an issue.
So while the market anticipates a continuing of the status quo we must nevertheless remain vigilant. There is still the problem of negative and stagnant growth in Europe and a slowdown in China. Having said that a recovery in the worlds biggest economy, the USA, will indeed provide the kind of support (globally) to help the aforementioned grow as a result. Like any good Central Bank Governor knows, one great number doesn’t quite “hack it”. There has to be sustained and consistent growth coupled with greater EPS from companies in general. Their growth spurs others and in effect creates a snowball effect which is something we have all been waiting for since the Financial Crisis of 2008. Finally there is some light at the end of the tunnel.
As for the currencies, do not be surprised if the EUR does manage a bounce from the current levels (1.3420) brought about by profit taking and the ability of the interbank market to squeeze the market higher. 1.3380 remains a sticky level while 1.3475 is my bounce level should it happen.
GBP/USD has been utterly roasted, falling over 2% over the past few weeks (high of 1.7180) on the back of the USD rally. Once again the USD shows us who really is king. I for one do not believe that the GBP will necessarily suffer as much as the EUR, AUD, CAD, NZD etc given the strong position the UK economy finds itself in. So while we have fallen to 1.6835 (currently) I feel we should see a recovery potentially back to 1.7000, keeping in mind that 1.6980 remains the key level.
EUR/GBP been on the back foot all day rallying from 0.7930 to 0.7970 currently. Again this is due to the recent USD rally and the fact the vs the GBP, the USD has been more vicious. While I do not think the GBP rally against the EUR is over, like I mentioned above any pull back is always a healthy one, and this is exactly what we are seeing here. It is for this reason I see a stronger rally in GBP/USD than I do in EUR/USD which will in effect strengthen the GBP vs the EUR.
Have a great weekend ahead