FX Update: EURUSD teetering at pivotal levels ahead of US jobs data

Forex 6 minutes to read

John Hardy

Head of FX Strategy

Summary:  EURUSD trades at pivotal levels after a strong ISM Non-manufacturing survey yesterday and ahead of important US jobs data through the end of this week. The two largest payrolls data series out of the US are giving very different impressions of the rate of payrolls growth. Which one is right?


Iran surprised me and many market participants with quick retaliatory strikes overnight against US airbases in Iraq. The attacks seemed designed to showcase that  Iran can hit a target with its missiles but also to show that it wasn’t interested in loss of life of US military personnel as the US side claimed no fatalities. Iran positioned the attacks as having “concluded proportionate measures”, suggesting that there is little risk of immediate escalation as long as the US side does not respond in kind. It will be important to see the response in the  US morning today from the Trump administration. The longer term risk of asymmetric warfare from the Iranian side is an important factor, but I still judge the immediate prospects of an escalation overt kinetic conflicts to be low, given the US overwhelming capabilities. The market action overnight bore that out, as most major assets returned to levels trading just before the attacks. An odd coincidence or accident or unlikely, something more sinister also spooked markets as a passenger airline headed for Ukraine went down in Tehran around  the time of the attacks.

Elsewhere, the US dollar continue to press higher – erasing the overnight dip in USDJPY and pushing most determinedly higher against the Euro this morning as that pair traded near local lows this morning – perhaps the weakness down to ugly German Factory Orders, a topic we discuss extensively in this morning’s Market Call as Germany perhaps struggles with a permanent change of the landscape in the automotive industry. On the US side of the pair, yesterday’s December ISM Non-manufacturing suggested no immediate cause for concern in the dominant services sector of the US economy.

If markets are watching US macro data to drive the USD outlook, the employment data is critical for whether the Fed is happy to sit on its hands from here (market consensus) or will be forced into another round of cuts on weaker jobs data. On that front, the two major data series, the official nonfarm payrolls change and the ADP private payrolls change numbers have never been as divergent as they are currently in the recent history of the two data series and were only this divergent as the global financial crisis was unfolding, when the NFP series was slower to register the degree of job market weakness than the ADP series – note chart below. One of the series is wrong – which one? (By the way, the official private payrolls doesn’t meaningfully diverge from the basic nonfarm payrolls series, so the 2020 US census hiring is not the likely driver as it may have been in the spring 2010)

Chart: US NFP payrolls change vs. ADP private payrolls change
The NFP change data series is far stronger than the ADP payrolls change series – suggesting that one of the data series is wrong – if we are in a weakening economic environment in the US,  as was the case in early 2008, the ADP was the leader in detecting the severity of the decline. Not enough observations for statistical relevance, but the gap will mean revert eventually. The ADP payrolls change for December released later today expected to rebound strongly from the weak +67k in November and print above +150k.

Source: Bloomberg and Saxo Group

The G-10 rundown

USD – the status of the US dollar is pivotal to watch here with a new calendar year under way as a breakdown in EURUSD and potential break-up well above 1.3000 in USDCAD would begin to weigh against the USD bearish case.

EUR – if the euro is becoming the funding currency of choice, it is not showing up very well in the knee-jerk reactions to events like those overnight, where we saw the usual CHF and JPY suspects strongly preferred. Waiting to judge EURUSD developments after seeing the weekly close this week.

JPY – a geopolitical,  risk-off inspired spike overnight that was largely reversed, but interesting to note the strength in the crosses recently – correlates with bond market strength. Negative US data through the end of the week is the chief hope for any JPY bulls in the crosses.

GBP – market awaiting signals from the EU side on UK Prime Minister Boris Johnson’s hopes for a quick free trade deal.

CHF – franc very heavy in EURCHF, with less recovery from the overnight risk-off spike and despite heavy SNB activity (assumed ongoing after evidence of such last week).

AUD – the Aussie has suffered a reversal against the US dollar and in many of the crosses – notable weakness despite strong asset markets and the US-China trade deal struck as markets fear RBA cuts and possible eventual QE

CAD – USDCAD teased above 1.3000 yesterday before the zany oil price spike overnight took the pair back lower – this pivotal level is the battle ground for the pair, together with relative job market strength as both US and Canada report jobs numbers on Friday.

NZD – when does the RBNZ move to complain about NZD strength here – AUDNZD our chief interest in relative strength terms

SEK – the krona relatively stable to stronger on relief from overnight concerns but despite the weak Swedish Retail Sales report for November and the Riksbank minutes saying that the bank won’t raise rates for a very long time.

NOK – overnight showing again that NOK not simply reacting in knee-jerk fashion to oil prices if risk off is simultaneously afoot. Interesting struggle here with 9.85 area and 9.90 area 200-day moving average.

Upcoming Economic Calendar Highlights (all times GMT)

  • Poland Base Rate Announcement (no time given)
  • 1315 – US Dec. ADP Employment Change
  • 1500 – US Fed’s Brainard (Voter) to Speak
  • 1530 – US Weekly DoE Crude Oil and Product Inventories
  • 0130 – China Dec. CPI
Disclaimer

Saxo Capital Markets (Australia) Pty Ltd prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at https://www.home.saxo/en-au/legal/.

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication.

Please read our disclaimers:
- Full Disclaimer (https://www.home.saxo/en-au/legal/disclaimer/saxo-disclaimer)
- Analysis Disclaimer (https://www.home.saxo/en-au/legal/analysis-disclaimer/saxo-analysis-disclaimer)
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-au/about-us/awards

Saxo Capital Markets (Australia) Pty Ltd ABN 32 110 128 286 AFSL 280372 (‘Saxo’ or ‘Saxo Capital Markets’) is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms, Financial Services Guide and Product Disclosure Statement to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as CFDs and Margin FX products may result in your losses surpassing your initial deposits. Saxo Capital Markets does not provide ‘personal’ financial product advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Capital Markets does not take into account an individual’s needs, objectives or financial situation.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan.
Please click here to view our full disclaimer.