We'll know whether 73 cents is a sustainable bottom for a while, or not as may be the case, later this evening when the US releases its June jobs data. I say that because economic and central bank outlooks and policy differentials continue to be key drivers of forex rates.
Just look at the recovery in the Pound, Euro, and CAD together with the weakness in the Yen and Kiwi recently when there has been a narrative shift around the outlook for the central bank policy in the months and year ahead.
And after last night's minutes of the June FOMC meeting, it strikes me that the release of non-farm payrolls and the associated unemployment and average hourly earnings data tonight will determine whether the market focuses on the FOMC's risk case around the economy and trade war or its base case which is that the US economy is strong, inflation is rising, and rates need to gradually continue to be increased until they are no longer accommodative.
Punting a number is dangerous. But it is worth noting that in the same way we have seen a sharp lift in the CESI for the UK, Japan, Europe, and even emerging markets from weak - and still negative - levels recently it's worth noting the US CESI bottomed last week at -4.9 has already lifted to 10.2. That's against the EU score of -48.9, UK at -5.5, Japan at -5.7, em at -6.8 and Australia which has slipped back into negative territory recently at -5.5.
Expectations are for an increase in NFP of 195,000 the unemployment rate to stay steady at 3.8% and average hourly earnings to grow 0.3% mom and a 2.8% pace yoy.
A weak number and the focus is on what the headline writers and editors saw as important in the Fed minutes - the risk case. And though I wonder if the US can continue to generate as many jobs as it has recently a strong number on the other hand (even if its just low unemployment and an acceleration in earnings) will refocus attention on what the Fed actually said and that 2 more hike Dot Plot.
In the meantime and reflecting on where the AUDUSD is this morning it's worth reiterating what I said in Markets Morning earlier.
That is, it was again the USD move which has helped the Aussie resist the weakness we are seeing in China stocks and in industrial metals markets like copper which fell 3% last night not to mention the continued drift in iron ore.
Again this morning morning the AUDUSD is about 50-70 points above the 0.7310/20 region the copper price fall would suggest. Likewise though, the AUDUSD is about 40 points below the 0.7420 region that the Euro’s appreciation in recent days would suggest. But at 0.7380/90 the AUDUSD is roughly in line where the recent moves in the USDCNH would suggest it should be.
And all of that adds up to non-farms being the key.
I say that because the print will impact Euro – one way or the other – and is also likely to impact the Yuan’s rate both on and offshore. So while I’ll be watching the Yuan’s move in Asia it’s the NFP results at 10.30pm tonight which are the key.
Levels on the day are 0.7405/10, 0.7425, and 0.7445/50 topside and 0.7370, 0.7335, and 0.7300/15 bottom side.
Technically it looks like the Aussie - and others - ar building for an attempt to run higher. That means the upside could be accelerated if 0.7445/50 breaks But this level has to break to change the ST outlook. MT the charts still point lower.
Have a great day's tradin
Chief Market Strategist
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