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British Pound Swoons, US Dollar May Extend Gains on Jobs Data

British Pound Swoons, US Dollar May Extend Gains on Jobs Data

Ilya Spivak, Head Strategist, APAC

Talking Points:

  • British Pound swoons France’s Hollande urges painful Brexit bargain
  • Commodity currencies fall, Yen outperforms amid risk aversion in Asia
  • US Dollar may extend gains as jobs data reinforces Fed rate hike bets

The British Pound sank in early Asian trade, at one point losing as much as 7.5 percent against an average of its top counterparts. The move began just as a Financial Times (FT) article quoting Francois Hollande crossed the wires. Referring to the outcome of the Brexit referendum and recent strong-worded rhetoric from UK Prime Minister Theresa May, the French President argued that the EU must be as tough as possible on its neighbor across the English Channel.

“There must be a threat… a risk…a price”, Hollande said.“ If not…other countries would want to leave the EU to get the supposed advantages without the obligations.” Thin liquidity before the trading open on most Asian bourses probably amplified the move. The magnitude of the drop and the violent recovery thereafter – prices erased more than three quarters of the move within 10 minutes – suggests this is not the whole story however. Newswires have speculated that the participation of trading algorithms compounded volatility.

Shellshock after the Pound fiasco appeared to translate into wider risk aversion overnight. The sentiment-linked Australian, Canadian and New Zealand Dollars tracked Asian stock benchmarks and S&P 500 futures downward, with the Kiwi underperforming amid swelling RBNZ easing speculation. Markets now price the probability of a rate cut at next month’s policy meeting at 66 percent. The anti-risk Japanese Yen and US Dollar outperformed.

The greenback may continue to build higher as US Employment data is released. The economy is expected to have added 175k jobs in September, up from 151k in the prior month. An increase of more than 143k would keep the three-month average at 190k, a threshold identified by Fed Chair Yellen as supportive of a rate hike in 2016. This seems to mean that anything short of deep disappointment will reinforce already swelling tightening probability. The priced-in chance of an increase in December is now at 63.6 percent.

Losing money trading in the FX market? This might be why.

Asia Session

GMTCCYEVENTACTEXPPREV
22:30AUDAiG Perf of Construction Index (SEP)51.4-46.6
23:50JPYOfficial Reserve Assets (SEP)$1260.1b-$1256.1b
00:00JPYLabor Cash Earnings (YoY) (AUG)-0.1%0.4%1.2%
00:00JPYReal Cash Earnings (YoY) (AUG)0.5%-1.8%
01:31CNYForeign Reserves (SEP)$3166.4b$3180.0b$3185.2b
05:00JPYLeading Index CI (AUG P)101.2101.6100.0
05:00JPYCoincident Index (AUG P)112.0111.8112.1

European Session

GMTCCYEVENTEXP/ACTPREVIMPACT
06:00EURGerman Industrial Production (MoM) (AUG)2.5% (A)-1.5%Medium
06:00EURGerman Industrial Production (YoY) (AUG)1.9% (A)-1.3%Medium
07:00CHFForeign Currency Reserves (SEP)628.0b (A)626.9bLow
07:30GBPHalifax House Prices (MoM) (SEP)0.0%-0.2%Medium
07:30GBPHalifax House Price 3Mths/Year (SEP)5.9%6.9%Medium
08:30GBPIndustrial Production (MoM) (AUG)0.1%0.1%Medium
08:30GBPIndustrial Production (YoY) (AUG)1.3%2.1%Medium
08:30GBPManufacturing Production (MoM) (AUG)0.4%-0.9%Medium
08:30GBPManufacturing Production (YoY) (AUG)0.8%0.8%Medium
08:30GBPVisible Trade Balance (£, Mn) (AUG)-11250-11764Medium
08:30GBPTrade Balance Non EU (£, Mn) (AUG)-3700-4188Low
08:30GBPTrade Balance (£, Mn) (AUG)-4000-4502Low
13:00EURECB’s Praet Speaks on Panel in Washington --Low
14:00GBPNIESR GDP Estimate (SEP)-0.3%Medium

Critical Levels

CCYSupp 3Supp 2Supp 1Pivot PointRes 1Res 2Res 3
EUR/USD1.10221.10951.11231.11681.11961.12411.1314
GBP/USD1.23431.25011.25591.26591.27171.28171.2975

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

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