Posted on: 04 March 2016, by: Pepperstone Support, category: Market Review
The USD has given back some gains nearly everywhere. However, USDJPY continues to test 113.50.
Biases were a play on further signs of market stability for oil and China, along with positioning ahead of the NFP.
The US ISM services print proved to be the nail in the coffin for USD. This was steady, as expected, at 53.4, but participants were not pleased to see its employment component drop from 52.1 to 49.7 for the first time in two years. US 10y yields broke out of range on this, shedding ~4bps towards 1.81%.
Volumes reflected this: down -10% overall but 15-20% higher for AUDUSD, GBPUSD, and NZDUSD. Average for the EURUSD and -30-40% down in USDJPY. Despite price action, we saw mixed interest.
Not surprisingly, we saw a net bias to sell the rally in EURUSD towards February highs near 1.0970. Dovish ECB expectations are firmly anchored. The market ignored positive data surprises Thursday: the Markit composite PMI was revised up from 52.7 to 53.0, while retail sales increased by 0.4% MoM (2.0% YoY) in January versus 0.1% MoM (1.3% YoY) forecast.
We continued to see light AUDUSD demand but it has failed to meet next resistance at 0.7380. Retail sales provide the next test at 20:30 GMT or 19:30 EST (Thursday). The market looks for a gain of 0.4%MoM versus 0.0%.prior.
GBPUSD has recovered to nearly 1.4200 and our spot desk would not be surprised to see extend further. This is a “Brexit overdone” recovery and with dovish ECB biases entrenched, only continues to point for further downside in EURGBP.
CAD traded sideways with oil. Canada employment data will not be released alongside the US report on Friday, leaving market participants waiting on NFP and talking about next week’s BoC meeting.
Only 1 of 21 economists call for a cut at the meeting.