All Quiet Ahead of US Data Deluge

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Market Drivers July 6, 2017
AU Trade data beats
Market looks ahead to US data
Nikkei -0.29% Dax -0.44%
Oil $46/bbl
Gold $1223/oz.

Europe and Asia:
AUD Trade Balance 2.4B vs. 1.1B

North America:
USD ADP 8:15
USD ISM Non Manufacturing 10:00

It’s been a very quiet night of trade in the currency market with most of the majors contained to 20 pip ranges though EURUSD saw some action as Bund yields hit a 1.5 year high.

Bund yields were propelled higher by rising speculation that the ECB will start to move towards a neutral bias relatively soon. FX markets are becoming convinced that after years of ZIRP policy G-7 central banks are starting to move towards normalization and that is likely to create greater volatility in months ahead.

Meanwhile, in Australia the trade data was better than expected coming in at 2.4B versus 1B eyed as exports surged 8%. The uptick in exports was led mainly by the return of coal production after a falloff in Q1 due to inclement weather. Overall trade should provide a modest contribution to Q2 and Q3 growth for Australia, but the market reaction was virtually non-existent as the pair remained glued to the .7600 level.

The Aussie is now trading primarily on carry trade flows and its price action is largely governed by the swings in US yields. To that end, today data avalanche could prove pivotal for the market as traders will get a glimpse at both the ADP report and the ISM Non-Manufacturing which tends to be the most accurate forecaster of labor data.

A few days ago President Trump tweeted that US labor data should be strong. It’s difficult to tell is he actually had a preview of data from BLS or was just expressing wishful thinking, but markets are clearly acting like US data should be positive with USDJPY finding bids underneath the 113.00 level all week long. If both ADP and ISM beat their mark, USDJPY could challenge the 114.00 figure as the day proceeds.

Boris Schlossberg
Managing Director

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