The DXY index rose on Tuesday, nearing 12-month highs reached last week. Traders are treading cautiously ahead of Friday’s NFP report, while sentiment is also constrained by uncertainty surrounding the US debt ceiling. Federal budget spending will be suspended on October 18, as the Treasury will not be able to raise money from the open market.
Today’s macro agenda (GMT 3)
- 11:30 UK: construction PMI (September)
- 12:00 Eurozone: retail sales (August)
- 15:15 US: ADP private payrolls (September)
- 17:30 EIA: weekly petroleum status report
By the time of writing, major currencies were trading in negative territory. So far, the largest losses have been seen in the kiwi (-51%) and the aussie (-0.45%). The New Zealand dollar retraced to its intraday high after the Reserve Bank of New Zealand (RBZN) meeting and fell 62 pips to 0.6918.
The RBZN hiked the OCR by 25 bps to 0.50% at today's meeting, in line with expectations. In its statement, the regulator said that further withdrawal of monetary policy incentives is expected over time, depending on the medium-term prospects for inflation and employment.
After the decision was announced buyers began to take profit on earlier gains as major currencies declined amid falling stock index futures and an uptick in the 10-year UST yield to 1.573%.
The key pair is currently trading at 1.1577. Price action on the FX market will likely remain subdued until the end of the week. Investors now await September US jobs data, which could offer clues on whether the Fed will start tapering asset purchases in November or postpone this move until December.
Bonds are getting cheaper amid fears of a default on US debt. Investors are growing concerned by the approach of October 18, when US budget spending will be suspended. Congress should raise or suspend the borrowing limit.
The NFP report looms large as this week’s highlight, so today speculators will be focused on the ADP print. There is no correlation between ADP and NFP, although the ADP index could trigger sharp fluctuations in case of a marked deviation from the baseline forecast. Also, FX market participants are advised to monitor the performance of stock indices during the North American session. A pullback could trigger a flight to defensive assets.
A decline in the EURUSD pair is constrained by the Fibonacci 76.4% retracement level of the upward movement from 1.1563 to 1.1640. The euro is under pressure from crosses. Given that the 45-degree angle has been breached, the risk of a retracement to 1.1563 has increased. There is hope for a rebound from 1.1572, but there is no confidence in a deep correction. The corrective pattern from 1.1563 shows a complex wave formation, so we expect price action to continue consolidation in the range of 1.1560-1.1640 up until NFPs come out.