Today will be an important day, with important data out of the UK, even more important since crash of the GBP overnight. In addition we obviously have the main event of the day, the NFP. The expectation is for 175K this month, and if we get a strong number, the chances for a rate hike this year will increase further.
The trading pattern we usually see a large move, then a small retracement, and then a continuation of the initial move.
CurrenciesEUR/USD – extended its losses as the USD keeps on strengthening with also yesterday’s data out of the US coming in positive. We are currently trading around the next support level around the 1.1116 level, a level we trade at last around 2 months ago. With the NFP coming up later today there is more action to be expected.
USD/JPY – extended its gains even further and reached the 104 level to reach the level right before the BOJ and FED interest rate decision last month. The next resistance in not too far off below the 105 level, but a strong NFP and we could see a breach here and possibly a move towards the next resistance around the 106.3 level.
GBP/USD – saw a total crash overnight and dropped under the 1.20 level before moving back up to the 1.24 level at the moment. This marked a 3 decade low, as these levels have not been seen since the mining industry strike of 1985. What has caused this total collapse of the GBP?
There was light trading during the Asian session, which makes more volatility more likely, which obviously helped. In addition, there have been signals from France and Germany that the negotiations on the Brexit will be much tougher than previously anticipated, making a hard Brexit more likely, especially combined with the comments from British PM May over the weekend. Another possibility is a wrongly entered trade, something which happened last in 2012 when there was a huge crash within a minute in US indices. The likelihood that this was indeed the case is good, as we did not see any major moves in other instruments, such as gold or other safe havens. A lot of people expected the GBP to drop to the 1.20-1.25 level in the aftermath of the Brexit vote, but it is very well possible that we will see even lower levels in the coming weeks/months.
USD/CAD – is climbing higher even though oil is also moving higher. At the moment it is apparently more driven by USD strength and less by oil prices. We are approaching the resistance around the 1.329 level again.
IndicesDAX 30 – came once more close to reach the downwards trend line, but for now was not really tested.
Dollar Index – reached the highest level in 2 months ahead of the NFP as the USD keeps on strengthening. The NFP will decide whether we break through the highest level reached in July and with that reach the highest level since March.
S&P 500 – closed pretty much unchanged yesterday and is not seeing much movement this morning, but this is bound to change this afternoon with the NFP. Will we see another test of the resistance at the 2167 level?
CommoditiesGold – is heading fast towards the support around the 1240 level and unless the NFP will disappoint it is likely we will see this level already today. This week alone gold has dropped $70, making it the worst week for gold in years.
Oil – managed to cross the 50 level and has based itself above this level for now as well. Next week there will be follow up meeting between OPEC and non-OPEC countries to discuss the agreement reached last week by OPEC members to slightly cut production. OPEC obviously hopes that non-OPEC countries will agree to at least freeze their own production, as otherwise they are bound to lose market share, something that they do not want, especially Saudi Arabia. It is telling that Saudi Arabia also already has been selling its oil to Asian customers at a discount to protect its market share. Russia has already indicated that they would be willing to work with OPEC to stabilize the oil market, but as mentioned a before, historically we have seen agreements being breached over and over again.