FX News Today

Yesterday was a historic trading day for EUR traders in the wake of the ECB’s and Mario Draghi’s surprise move that disappointed the EUR short sellers in the market, after the ECB cut the deposit rate by just 10 basis points when the market had priced in at least a 20 basis point cut. High EURUSD price action after the disappointing announcement likely blew up short sellers as the pair surged higher by 450+ pips on the day.

EURUSD short sellers will be further tested today as today’s U.S. jobs report could offer some more surprises. A stronger NFP number could flip some of EURUSD recent gains, however on the other side of the trade, if we see a big NFP drop off, we could quickly see a EURUSD pop the late October’s levels near 1. 1100.

The EUR gets a bit of further support today as the German manufacturing orders at the start of the session came in much higher than anticipated at 1.8% m/m and September data were revised sharply higher.

Fed Chair Yellen finished her JEC testimony on policy without adding anything new. She repeated several times that the economy is growing and the labor market is near full employment. Liftoff went on to say, also doesn’t mean the FOMC is embarking on a pre-determined course, and added, the trajectory will be gradual. So it looks as though it’s all systems go for a small hike.

Asian stock markets are down across the board, following on from heavy losses in the U.S. and especially the Eurozone, as Draghi’s package of easing measures fell short of expectations.

The weaker USD drove up oil prices though short covering ahead of today’s OPEC meeting has been viewed as the culprit. A lack of agreement on production cuts from the Vienna meeting, will see the global supply glut picture come back to center stage and further oil price losses may be expected.

Main Macro Events Today

• EUR German Manufacturing Orders: Surged 1.8% m/m, a much stronger rebound than expected and with the September number revised up sharply to -0.7% m/m from -1.7% m/m, the numbers tie in with the better than expected confidence readings this month. Still, this was the first improvement since June, and the three months trend rate still dropped to -2.9% from -2.7% in the three months to September. The German recovery may for once be driven by consumption, rather than exports and manufacturing, but still, these are weak numbers that suggest a slowdown in activity at the start of next year.

• German construction PMI: Jumped to 52.5 from 51.8 in the previous month. More signs that the construction sector is picking up as low interest rates fuel demand for property investment and the refugee crisis will mean additional demand for housing. Something then to counterbalance the weak manufacturing sector, which is facing a drop in demand.

• USD NFP: November nonfarm payrolls are expected to increase by 200k, with a 190k private payroll gain. Forecast risk: upward, as lean claims readings should provide some tail wind. Market risk: downward, as substantial weakness could put a December rate hike on hold. The unemployment rate is expected to remain steady from 5.0%. The workweek is expected to remain at 34.5 from September. Hourly earnings are expected to grow 0.1% which would leave a 2.2% y/y rise. Hours-worked should be up 0.1% for the month following a 0.3% increase last month.

• USD Trade Deficit: The October trade deficit is expected to hold steady from -$40.8 bln in September. Exports in October are expected to fall 1.6% while imports show a 1.3% decrease on the month. Forecast risk: downward, if October service trade captures some of the goods-trade weakness. Market risk: downward, as weaker than expected data would push back rate hike assumptions. The trade deficit has failed to narrow significantly in 2015 despite a sharp price-led drop in petroleum imports, thanks to weakening foreign demand and a strong dollar.

• CAD Unemployment: Employment is expected to fall 10.0k in November after the 44.4k surge in October. Forecast Risk: Canada’s job surge in October was driven by a 32.0k surge in public administration payrolls that was largely due to temporary work associated with the federal election. A pull-back seems in the cards as those temporary workers are let go with the conclusion of the election. But education payrolls could provide a boost, having declined 3.6k in October on top of the 51.3k plunge in September that was the largest on record. Hence, the risk is mixed given the divergent risks associated with public admin and education.

• CAD IVEY PMI: Canada’s Ivey PMI is expected to rise to 54.0 in November from 53.1 in October on a seasonally adjusted basis.

Janne Muta

Chief Market Analyst

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