Daily FX Wrap: Tight trading session ahead of tomorrow’s US payrolls release, with Trump meeting with China’s Xi Jinping keeping risk sentiment on edge. Draghi underlines policy stance unchanged for now. GBP range bound.
Thursday’s trading session was another damp squib, with the leading G10 pairings maintaining tight ranges as traders look to get past the Trump/Xi Jinping meeting without ‘incident’. The US president’s brusque manner has risk sentiment on edge, with currency manipulation and North Korea on the agenda, but few expect either side to jeopardise diplomatic relations in the interest of global stability.
For the USD, balance sheet reduction has been in focus given traders have set ‘limits’ based on the size of (gradual) rate hikes ahead, with intra range volatility tamed after the FOMC minutes offered little more in terms of how and when to address reinvestment. With little reason to aggressively sell off the greenback, USD/JPY has found support again ahead of 110.00, with EUR/USD is looking well offered ahead of 1.0700.
From the USD perspective, all eyes are on the non-farm payrolls report on Friday, after the ADP survey was at odds with the employment index in the ISM manufacturing PMIs. Wage growth is key here once again as real vs nominal rates will dictate price action on the Treasury curve.
Pertaining to the EUR, ECB president Draghi underlined the fact the current monetary policy stance is duly appropriate, as the governing council needs to see further sustainability in the inflation pick up, alongside the green shoots of recovery. The impact on the EUR has been modest, and against the USD we continue to run into bids under 1.0650 while a test on 0.8500 saw EUR/GBP swiftly pull back.
Economic drivers for GBP have been all too brief in their response, with the notable rise in the UK services PMI largely dismissed as Cable remains hemmed inside a 1.2400-1.2500 range, though this is a welcome relief after the recent months of volatility. The EUR cross rate finds sellers ahead of 0.8600 for now, but demand in evidence as reported above. Along with the latest industrial and manufacturing production stats and trade figures, both for Feb, perhaps more focus on BoE governor Carney speaking at 10.00 am London time to Thomson Reuters.
Minimal ranges of note in all AUD, NZD and CAD, with AUD/USD looking well cushioned in the lower half of the low 0.7500’s for now. Copper prices have stabilised again despite Chinese demand brought into question at the start of the week, but this looks to have abated to the benefit of AUD and to a lesser degree NZD. CAD weakness still pointing to a sterner test of 1.3500, but decent sell orders keep the market south of 1.3450 for now, aided by WTI maintaining a foothold firmly above USD50.00. Canadian payrolls may have a strong impact given the sizeable shift from part time jobs into full time in Feb, with the backdrop of healthy GDP in Q4 and Jan so far.
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