FX Update: USD soft ahead of November jobs report

Forex 6 minutes to read

John Hardy

Head of FX Strategy, Saxo Bank Group

Summary:  The US dollar trading on the weak side after weak data yesterday, especially the ADP payrolls, but the more decisive data will be any notable surprise in the payrolls numbers tomorrow. Otherwise, the focus elsewhere is on the surge in sterling ahead of the UK election next week.


Market sentiment has recovered strongly since an article from Bloomberg yesterday suggested that US-China phase one trade deal negotiations are progressing despite rather aggressive exchanges over Hong Kong and other issues recently and Trump’s mention that he might prefer to wait until after the election to strike a deal. The trade deal-related pump-and-dump headlines were weakly felt in currencies to begin with, but could certainly be seen in currency pairs like NZDJPY in recent days. The next key question besides any actual announcement of a deal is whether the US tariffs scheduled for December 15 will go into effect.  The US dollar has largely remained soft through the ups and downs in trade deal hopes.

Yesterday’s US data was soft, with the ISM Non-manufacturing edging lower to 53.9. Strong subcomponents, however, included New Orders at 57.1 and Employment at 55.5 – the latter the strongest in months. We have no visibility on a single month’s payrolls data point as we look ahead at tomorrow’s November Nonfarm Payrolls change, with job openings data and yesterday's weak ADP payrolls (+67k) pointing to downside risk, while the ongoing low jobless claims, albeit with slight bumps in a couple of readings recently, and the strong ISM non-manufacturing reading suggesting no cause for alarm.

The Canadian dollar got a strong boost from the sentiment shift yesterday on the US-China trade deal hopes, on crude oil snapping back higher after a recent sell-off, but most of all on a more sanguine message from the Bank of Canada, which sounded more optimistic and talked up a stabilizing global economy. The reaction to the BoC’s message was enhanced by the fact that the prior shift in the guidance was dovish-sounding caution. USDCAD is firmly mid-range and the 1-year implied volatility for options has descended to unprecedented sub-5% levels.

Chart: GBPUSD
Sterling is off to the races to the upside on hopes for a smooth Brexit process and a strong post-election fiscal impulse as well as the clearing of uncertainty bringing a strong inflow of capital. GBPUSD has taken out the obviously pivotal 1.3000 and has room to run to 1.3300+ , perhaps even if the USD is merely sideways rather than actually weak. The post-Brexit vote high in GBPUSD was well over 1.4000, but much of that was down to USD weakness back in 2017, while the post-Brexit (post July 2016, at least) EURGBP lowest weekly close is less than 1% lower from here.

Source: Saxo Group

The G-10 rundown

USD – the US dollar looking consistently weak and vulnerability could increase if we see a weak jobs report tomorrow. But to get the technical situation moving forward, we need a more notable break lower in the major USD pairs.

EUR – the euro firm but not inspiring confidence. Risks to growth in Europe include widespread French strikes set to slow the economy to a halt in coming days, while Germany’s Oct. Factory Orders hardly suggest an imminent turnaround in Germany industry.

JPY – market hardly registering Japan’s stimulus package, coming in at some ¥13 trillion or $120 billion, or just under 2.5% of GDP. The yen is soft as risk sentiment has recovered and bond yields pull higher – the 10-year JGB is within striking distance of a 0% yield again.

GBP – sterling moving aggressively higher on the assumption of a smooth Brexit and Boris Johnson’s promise of a powerful fiscal boost set in motion within 100 days of his election. The next hurdles for sterling in EURGBP and GBPUSD are for

CHF – the franc easing lower in sync with improved risk sentiment and the boost to bond yields since yesterday.

AUD – the Australia retail sales  report for October in at a weak 0.0% MoM and +2.1% year-on-year, the latter the weakest reading since a couple of lower readings back in 2017.

CAD – Bank of Canada and shift in sentiment and neck-snapping reversal in crude oil brining CAD support – but we’re only back to mid-range – need a more profound shift in the USD outlook to get USDCAD down through the key 1.3000 area, though it has never been cheaper than now to take a long-term view in the options market, with implied volatility for USDCAD out the curve at record lows.

NZD – wouldn’t trade deal hopes materializing into a deal support AUD more than NZD? Still no sign of a turnaround in AUDZND, while NZDUSD is mulling a break of the 200-day moving average and poked at a major 61.8% Fibo retracement overnight at 0.6567

SEK – the krona sensitive to shifts in the global economic outlook, which are in turn sensitive to US-China trade deal headlines for the moment. SEK looking resilient here after miserable Sweden PMI’s in November – 10.50 in EURSEK the next technical hurdle to overcome for a run at 10.25-20.

NOK – no surprise to see EURNOK reversing back lower after the shift in trade-deal hopes yesterday and related bump in crude oil prices. NOK reactive to OPEC and OPEC+ meeting outcomes today and tomorrow. Otherwise, we won’t have a good read on NOK potential until January, when seasonal headwinds ease.

Today’s Economic Calendar Highlights (all times GMT)

  • 1000 – Euro Zone Oct. Retail Sales
  • 1330 – Canada Oct. International Merchandise Trade
  • 1330 – US Weekly Initial Jobless Claims
  • 1330 – US Oct. Trade Balance
  • 1300 – Canada Bank of Canada’s Lane to Speak
  • 1500 – Canada Nov. Ivey PMI
  • 1500 – US Fed’s Quarles (Voter) to Speak
  • 1500 – US Oct. Factory Orders

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