The US dollar continued to push higher yesterday, hitting its highest levels this year before retreating ahead of today’s US non-farm payrolls report.

The rise in the dollar is starting to exert downward pressure on US stock markets, while European markets, despite a negative session yesterday, look set for a sixth consecutive positive weekly finish, although the FTSE 100 has underperformed.

Concerns about the ongoing meeting between US and Chinese officials over trade policy have been cited as one factor contributing to some of yesterday’s investor nervousness, however these worries aren’t likely to dissipate any time soon and aren’t really anything new.

This week’s Federal Reserve rate meeting didn’t provide too much in the way of surprises, though the change in the tone of the statement has raised the prospect that despite higher inflation expectations, the Fed may well be concerned that growth prospects may have plateaued. Yesterday’s ISM non-manufacturing survey for April appeared to bear out these concerns with a drop in the headline number to 56.8, while prices paid edged up to 61.8. We saw a similar pattern in manufacturing prices paid, and this does raise the prospect that as far as forward earnings expectations, what we’ve seen in the past few weeks could well be as good as it gets.

Today’s non-farm payrolls numbers for April may well reinforce this perception, with markets hoping that we’ll see a significant improvement to 190,000 from March which at 103,000 was a significant disappointment and well below February’s 313,000. The unemployment rate is expected to fall back further from 4.1% to 4%.

Wages are once again likely to be a key focal point in the hope that they will continue to edge higher, however expectations appear to be of the steady type with a reading of 2.7% expected, unchanged from the previous month. This would once again belie what is supposed to be a tightening labour market, by remaining well short of the 3% level that would help boost consumer buying power.

The euro has remained under pressure this week on declining expectations about the timeline of an expected tapering of the ECB’s bond buying programme. Yesterday the latest EU inflation numbers saw an unexpected decline in inflation on both the headline rate as well as on core prices.

We’ve heard ECB policymakers insist that they remain confident that inflation will soon move back to target, however the numbers don't underscore this confidence. Core prices in particular remain increasingly weak, falling back to 0.7%, just above the lowest level since 2008 when core prices were at 0.6%. It is becoming increasingly apparent that if this disinflationary trend continues, the ECB will be hard pressed to ease back on its easy monetary policy this year.

Today’s latest Europe-wide services PMI numbers are still expected to paint a picture of fairly decent economic performance, albeit at a slightly slower pace. Spain, Italy, France and Germany services PMIs are expected to come in at 56.1, 53, 57.4 and 54.1 respectively.

EUR/USD – pressure continues to build on the downside while below the 200 day MA at 1.2015, with support at 1.1920/30 and the 1.1780 level. We need to get back above the 200-day MA at 1.2015 to stabilise and open up the prospect of a return back towards 1.2150.

GBP/USD – pressure continues to build on the downside and the 200 day MA at 1.3520. A fall below 1.3520 opens up further losses towards 1.3300. We need a move back above the 1.3720 area to stabilise and target a return towards the 1.4020 area. 

EUR/GBP – is starting to edge back higher again moving above the 0.8830 level yesterday. The next resistance sits up near the 200-day MA at 0.8880. We need to see a move back below the 0.8790 level to suggest a return to the 0.8750 level. 

USD/JPY – has found some resistance at the 110.00 level with key resistance up at the 200-day MA at 110.25, with trend line resistance at 110.50 behind that. Support remains back at the 108.70 area. A move beyond 110.50 opens up the 112.00 area.
 

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