High	Low			High	Low
EUR/USD	1.1205	1.1160		USD/ZAR	13.9825	13.8597
GBP/USD	1.5158	1.5127		GBP/ZAR	21.18	20.98
EUR/GBP	0.7400	0.7367		USD/RUB	67.88	64.84
USD/JPY	120.15	119.78		USD/ILS	3.9500	3.9120
GBP/CHF	1.4824	1.4777		S&P 500	1,933	1,922
GBP/AUD	2.1596	2.1461		Oil (Brent)	48.91	47.99

Later on today, labour market data is published in the United States for non-farm payrolls, probably the most important monthly macro-economic announcement. This without a doubt has been the single key data point that has captivated the interest of market participants and central bankers for the past year. Whether it will continue to have quite the same importance now that most of the targets the FOMC was waiting for have been achieved is an open question, perhaps going forward inflation numbers will take pride of place, presumably in time we will learn more from the prognostications of key US central bankers. One can only imagine that the most important thing at this point – given concerns about slowing global growth – is that the Fed will want to make sure they are not forced to react to an upsurge in inflation. Given where commodity prices are, there seems to be very little chance in the short term for runaway inflation gains

 

One could be forgiven for thinking there hasn’t been any other interesting macro data out this week, but that would be wrong. Here’s a quick summary of what we’ve seen…

• Manufacturing activity in the US has slowed according to the ISM manufacturing index, with a reading lower than any since May 2013
• Household spending in Japan has perked up very strongly beating economist forecasts by a wide margin, this represents the first spending gain in 3 months in Japan
• Vehicle sales in the United States jumped at the fastest rate in over a decade
• Japan’s quarterly Tankan survey was disappointing for large manufacturers, as business sentiment deteriorated for the first time in 3 quarters, coupled with some poor industrial production numbers, some traders have been speculating that the Q3 GDP number in Japan might be negative
• South Korean inflation numbers have declined, but interestingly industrial production contrary to forecasts has grown.

 

This is just a sample, and my first take is that manufacturing activity is having a tough time of it in major economies, but consumers are coming to the fore. If consumers start to dominate then manufacturing activity will turn around, you can count on that. There will be some who look at the glass as half empty, but I choose to view it as half full. This has more of the feeling of a lull in global economic activity, but there is no question that economies like Brazil and China are a worry. If, however, American consumers step up as they have in the past we’ll soon forget about everything else.

 

I suppose the bottom line is, what does this all mean for currencies? My bigger picture view remains the same, although I have a much lower conviction level on the path that’s taken to achieve that view, than perhaps I did a week ago. I continue to believe that the US dollar will strengthen, but I expect the pound sterling to be softer in the coming months. The euro should fit somewhere in between. For today, I expect cautious currency markets – at least amongst the majors – as we wait for the big data in the United States.

 

 

 

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	High	Low			High	Low
EUR/USD	1.1179	1.1135		USD/ZAR	13.8695	13.7096
GBP/USD	1.5137	1.5106		GBP/ZAR	20.98	20.72
EUR/GBP	0.7392	0.7362		USD/RUB	65.77	64.59
USD/JPY	120.29	119.76		USD/ILS	3.9380	3.9055
GBP/CHF	1.4791	1.4718		S&P 500	1,939	1,911
GBP/AUD	2.1616	2.1396		Oil (Brent)	49.37	48.56

 

Equity markets are rallying this morning, no doubt the better than expected PMI data from China probably didn’t harm the bullish start. I should qualify the Chinese data by pointing out that it still signals a contraction in manufacturing activity albeit less than forecast. Perhaps less bad news from China is the start of a recovery, certainly the likelihood of monetary easing from the PBOC has grown. It wasn’t just equities that reacted positively this morning, commodities are perky and the Australian dollar is partying like it’s 1999….relatively speaking anyway!

 

I must confess the price action of cable (GBP/USD) has somewhat surprised me. As you may recall my bigger picture view was that the pound sterling is likely to seriously underperform the euro and the dollar. I did however expect after its recent underperformance a period of recovery which could take GBP/USD up to the 1.53 – 54 level. But the most we have seen so far was a bounce up to 1.5240 before downward pressure returned. It seems increasingly unlikely that the sort of corrective bounce I anticipated will occur. It may well be that cable weakness is here to stay for some time. I for one will assign a lower level of conviction to my currency market views until I can re-grasp the thread of the market. It’s tough out there right now!

 

Tomorrow, being the first Friday of the month, is of course non-farm payrolls day in the United States. As usual this data will be keenly watched by the market and the Federal Reserve. I would guess that average earnings data will be even more critical than the labour market data at this stage. After all, we have largely seen the US central banks labour market targets met, but they have still not reacted with an interest rate rise. At this stage only the threat of a loss of monetary control is likely to speed up the process of policy normalisation. That will only happen if inflation rears its head.

 

Looking at some of the commentary from bank strategists at the moment, the view is growing that case for a bearish euro is receding. This view seems to be based on a valuation argument and the signs of economic recovery in the Eurozone. While I have sympathy for the view that the Eurozone economy is starting to do better than might have been expected I am uncertain that the valuation justification is a reason to discard the bigger picture bullish dollar view. In fact I would argue that the better the Eurozone does, the more able the Federal Reserve will be to normalise policy, whereas monetary policy in the Eurozone will have to remain easy for years to come. That to me suggests an environment where the dollar can prosper versus the euro. Time will tell. For now GBP/USD broke the key levels to the downside I was watching, but EUR/USD failed to do the same, which confuses the dollar picture. Perhaps the only conclusion from this is that EUR/GBP looks bullish from here…

 

 

 

 

 

 

 

 

 

DISCLAIMER

Any financial promotion contained herein has been issued and approved by ParityFX Plc (“ParityFX”); a firm authorised and regulated by the Financial Conduct Authority (“FCA”) as a Payment Services Institution with registration number 606416.  It is for informational purposes and is not an official confirmation of terms.  It is not guaranteed as to accuracy, nor is it a complete statement of the financial products or markets referred to.

Opinions expressed are subject to change without notice and may differ or be contrary to the opinions or recommendations of ParityFX. Unless stated specifically otherwise, this is not a recommendation, offer or solicitation to buy or sell and any prices or quotations contained herein are indicative only. To the extent permitted by law, ParityFX does not accept any liability arising from the use of this communication.

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