USD: Friday’s epic NFP miss has, for the moment, ruined the bullish USD sentiment. We will have to wait to hear Yellen speak on Monday 6 June for clarification of how the Fed views this negative development.
It is generally assumed that June is no longer on the table with Fed Funds Futures implying a probability of only 3.8% of a June rate rise and a downward adjusted likelihood of a July rate rise to 30.2%.
Fed Governor Brainard said on Friday “Recognizing the data we have on hand for the second quarter is quite mixed and still limited, and there is important near-term uncertainty (READ: BREXIT), there would appear to be an advantage to waiting until developments provide greater confidence.
Dollar slumped across the board on Friday and Cable was no exception: but signs of a sustained retracement have appeared early for reasons related to GBP.
GBP: Brexit remains top focus and Opinium released a poll over the weekend showing Brexiters in the lead 43% to 40%. (http://www.theguardian.com/politics/2016/jun/04/poll-eu-brexit-lead-opinium). GBP pairs gapped significantly on Asia’s Monday open with only some of the weaker pair currencies such as NZD having closed the gap at the time of writing.
This scenario favours neither GBP or USD, although these currencies are still long term strong and simply suffering from corrections due to the nearer term factors mentioned above.
There are not many scheduled significant releases for the pair this week:
Monday 6 June: Yellen speech (16.30) – this will provide important clarification around the Fed’s take on Friday’s NFP. Likely to soften dollar (but has most correction has probably already taken place)
Thursday 9 June: US Initial Claims Employment Data (14.30)
Throughout the week: Brexit polling data may occur as unscheduled releases throughout the week and should be treated with caution: although most polling currently favour Brexit and therefore weak GBP, a pro-Remain poll could cause a GBP rally.
Cable may be highly volatile as the market tries to figure out how to price an unkown Brexit risk against an unknown future Fed hike postponement.
However the important fundamental factors outlined above will drive price in the short term.