FX Treads Water

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Market Drivers October 6, 2016

AU Trade Balance better
GE Factory Orders beat
Nikkei 0.60% Dax 0.12%
Oil $49/bbl
Gold $1266/oz.

Europe and Asia:
AUD Trade Balance -2.01B vs. -2.3B
EUR GE Factory Orders 1.0% vs. 0.2%

North America:
USD Weekly Jobless Claims 08:30
CAD Housing Permits 08:30

It’s been a very quiet night in the FX market with most majors tracing out very tight 30 point ranges in Asian and early European trade as participants appear to be content to simply tread water ahead of tomorrow’s marquee event – the US Non-Farm payroll report.

The dollar continues to hold its bid tone in the wake of yesterday’s strong ISM Services data that saw the index jump by the largest one month gain ever. The employment component which is one of the best forecasters of NFP report increased by 6.5 points to 57.2 suggesting that labor data this month should remain on track at 150K rate or better.

At Janet Yellen’s last press conference the Fed Chief specifically stated that labor growth now is above the replacement and strongly indicated that as long the economy continues to generate jobs at this pace, the Fed will proceed with rate hike in December and will commence the process of monetary policy normalization as next year begins.

The capital markets are clearly starting to anticipate this shift in policy, with fixed income traders also responding to the news this week as yields on the 10 year trades 20 bps higher at 1.70%. Assuming there are no major downside surprises in tomorrow’s report, the dollar momentum should continue but for today the markets are in a state of suspended animation as prices will likely consolidate in tight ranges though North American session as well.

Boris Schlossberg
Managing Director

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