NY Open: Payrolls, tariffs present headline risks

Michael O’Neill

FX Trader, Loonieviews.net

“Step right up and place your bets.” It’s not quite a carnival sideshow, but global financial markets are jockeying for position ahead of geopolitical issues and top-tier economic data. And there’s more... Washington is in a tizzy over yesterday’s anonymous New York Times editorial, purporting to have been written by a “senior official in the Trump administration.”  The president, notoriously thin-skinned for a politician, suggested it was treason.

Chinese officials may be hoping that Trump is sufficiently distracted to avoid his implementing tariffs on $200 billion of Chinese imports that could be announced as soon as today. China has promised to retaliate and could use a currency devaluation as a weapon, considering it doesn't have $200 billion worth of US imports to tax.

Such a move would crush AUDUSD and NZDUSD.  USDJPY would plummet due to trade jitters and safe-haven demand. USDCHF would rally, as would EURUSD, to a lesser degree. GBPUSD is lost in a Brexit world.

The US dollar has inched lower against the major G-10 currency pairs except against the Canadian dollar. This morning mix of US data didn’t offer any evidence that the US economy is slowing down. ADP Employment data showed job gains of 163,000 which was below the forecast of 217,000. ADP officials claimed the job market was robust despite the miss. The weekly Initial Jobless claims report seemed to confirm the ADP view.  They dropped to 203,090 from 213,000 last week. It is the lowest level since 1969. ISM services PMI rose, offsetting and disappointment from a dip in Factory orders.

The USDX suggests there is scope for further US dollar gains while prices are above support at 94.50.

USDCAD traded with a modest bid bias due to weaker than expected Building Permits data and the ongoing US/CAD trade talks. Yesterday, Prime Minister Trudeau said Canada would walk away from an agreement if it didn’t protect Canadian culture or have a dispute resolution mechanism.  Previously, Canada’s dairy supply management program was a sacred cow. That may no longer be the case.

Wall Street price action is tame. The DJIA and S&P 500 are trading slightly higher while the Nasdaq is a little in the red. Traders are unsettled by emerging market concerns and the possibility of China tariffs. 

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US dollar index (daily, source: Saxo Bank)

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