Cable Stumbles Ahead of NFP – Will USDJPY Pop?

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Market Drivers February 1, 2019
UK PMI Manufacturing misses
EUR pops post better inflation data
Nikkei 0.07% Dax 0.08%
Oil $53/bbl
Gold $1319/oz.

Europe and Asia:
EUR Core CPI 1.3%
GBP UK PMI Manufacturing 52.8 vs. 53.5

North America:
USD NFP 8:30
USD ISM Manufcaturinng 10:00

FX perked up into London dealing today with traders starting to position themselves ahead of the marquee economic event of the week, as US Non-Farm Payrolls were due for a release 13:30 GMT today.

The euro got a boost from hotter than expected core CPI data which printed at 1.3% versus 1.0 forecast and that helped to lift the pair back above 1.1450 level by mid-morning European trade. The 1.1500 figure remains the key resistance point for the pair, but if US data prints softer as expected the euro could make a run for that level as the day progresses. As we’ve been noting for a while, euro’s recent strength is not a function of any improvement in economic conditions in the region ( in fact quite the contrary, the latest PMI reading suggest near contractionary environment amongst most member nations), rather it is simply an expression of its role as the anti-dollar. To that end if US labor data disappoints another foray through 1.1500 could be in the cards.

Cable meanwhile tumbled to low of 1.3045 after UK PMI Manufacturing missed its mark printing at 52.8 versus 53.4 forecast. According to Markit, “The manufacturing sector made a lacklustre start to 2019, as trends in output and new orders slowed and employment fell for only the second time in the past two-and-a-half years. Companies reported that Brexit preparations led to sharp rises in both purchasing activity and stockpiling of inputs at warehouses. “

Cable has now moved from relative strength to relative weakness, especially against the euro as market participants are beginning to price the prospect of a hard Brexit. The closer we move to the deadline date without any progress in talks the sharper the moves in the pair will become as sentiment has now turned decidedly hawkish.

In US today the NFP report will grab the spotlight and with most market analysts looking for softer reading the stronger surprise could be to the upside. If the data prints above the 200K level despite the shutdown woes the turn in USDJPY could be significant with the pair likely breaking above 109.00 and perhaps even moving towards 110.00 as markets reconsider the possibility of further rate hikes by the Fed.

Boris Schlossberg
Managing Director

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