European Open Preview – Dollar rally falters and relies on US jobs report for fresh momentum

European Open Preview – Dollar rally falters and relies on US jobs report for fresh momentum

Posted on May 3, 2019 at 08:07 GMTRaffi Boyadjian, XM Investment Research Office

• The US Dollar Expands Earnings Before the Non-Farm Payroll Report Released Today
• Aussie reaches its lowest level in 4 months as ratings of the RBA rate drop increase
• Oil prices collapse in the face of concerns over oversupply as US production continues to rise

Dollar stands in front of NFP report

There was little to hold back the US dollar on Friday as recent strong US data and a not so dovish Fed have reduced the chances of a rate cut before the end of the year. Investors heavily adjusted their rate-reduction bets following the FOMC's policy meeting on Wednesday, when Fed Chairman Jerome Powell said the current weakness in inflation was probably due to transient factors. US Treasury yields jumped after Powell's remarks, proving that the dollar had strong short-term support.

In the report on non-farm payroll, which is very important today, the median forecast is that the US economy created 185,000 jobs in April. However, even if the number of payrolls exceeds expectations, it should be supported by an equally high average earnings figure. The growth in average hourly earnings has been between 3.2% and 3.4% since the end of last year and is expected to increase slightly to 3.3% in April. Any sign of slower wage growth could lead to a reversal of money market and bond movements this week as investors once again anticipate a higher probability of rate cuts from the Fed.

For now however, the greenback is trading near its two-year high, with the dollar index reaching 97.88% before opening on the European market.

The Australian and the kiwi on the slide in anticipation of the meetings of the RBA and the RBNZ

The Australian and New Zealand dollars remained on the sidelines on Friday as traders continued to speculate that Australian and New Zealand central banks could cut rates at their respective political meetings next week.

Inflation in both countries fell more than expected in the first quarter, while in Australia, more poor data this morning were more numerous. Building approvals dropped by 15.5% per month in March and the AIG services PMI plunged deeper into contraction. The Australian reached a minimum of 4 months at $ 0.6983 after the data, although the kiwi managed to erase its losses to stabilize at $ 0.6616.

The Reserve Bank of Australia and the Reserve Bank of New Zealand will announce their latest strategic decisions on Tuesday and next Wednesday, with investors not ruling out surprise rate cuts.

The bullish dollar weighs on the euro and the pound sterling

The euro was trading well below the $ 1.1254 peak reached before the Fed's decision on Wednesday, as encouraging euro-zone GDP figures were overtaken by the relatively optimistic tone of the Fed's conference. Powell press.

The best chance for the single currency to regain a positive momentum is the instantaneous reading of the April CPI. A slight rise in inflation in the euro area, especially the core CPI, would provide further evidence that the worst has gone for the bloc economy.

The pound has also fallen since the Fed meeting, but has held steady above US $ 1.30 as its declines have been more limited due to rumors that the British government could accept a plan to customs union with the EU to gain Labor's support for Brexit. treat. As Conservatives and Labor suffered heavy overnight losses in local elections in England and Northern Ireland, the two main British parties could now be more eager to find a solution to the Brexit impbade for fear of to be punished by voters in the next elections.

The Bank of England's yesterday's meeting on monetary policy also garnered favorable support when Governor Mark Carney warned the markets that the probability of a rate hike in the coming months was greater than that involved in the markets. The immediate focus of the pound is now the PMI services that will be coming out of the UK later today.

Oil under pressure from soaring US production

Outside the foreign exchange markets, oil was a notable driver as prices fell sharply yesterday due to new fears of oversupply. US crude inventories jumped 9.9 million barrels last week and production reached a new record of 12.3 million barrels a day. Saudi Arabia could also increase production in June. Increased production from the United States has eased some of the difficulties in supplying OPEC production restrictions and sanctions on Venezuelan and Iranian exports.

WTI oil rebounded slightly from the record low of a month ago, at $ 60.95 a barrel, while Brent crude was no longer as low as $ 70.35 a barrel the barrel.

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