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Bullish sentiment fades, US jobs report in focus

Bullish sentiment fades, US jobs report in focus

It was yet another strong day for equity markets yesterday following the news that China will cut tariffs on some US imports.

Beijing revealed plans to greatly reduce the tariffs applied to $75 billion worth of US imports as of 14 February – the day when the US has agreed to slash levies on $120 billion worth of Chinese imports. The Chinese government didn’t map out which goods would be impacted by the cut in tariffs but traders still reacted in a bullish fashion.

The move by China is a continuation of the improving relations with the US, which will be mutually beneficial in terms of trade. From a financial markets point of view the tariff story was a great way for Beijing to take dealers attention away from the health crisis in the country. The bullish sentiment rippled out around global stocks. New record closes were achieved on the Dow Jones as well as the S&P 500.

Stock markets in Asia lost a little ground overnight following strong gains in previous sessions and that has set the scene for the European session which is pointing to a lower start.

It was a quiet day on the currency markets yesterday as there wasn’t much in terms of economic announcements to spark excitement. The greenback pushed higher versus other major currencies. In the past year or so, central banks around the globe have largely been loosening their policy. In light of the fact the Fed cut rates three times in the second-half of 2019, it would appear they are least likely to cut rates again.

The Bank of England still has to wait and see what the UK-EU post transition period relationship will look like. Yesterday, Christine Lagarde, the ECB chief, claimed there are ‘tentative signs of stabilisation’ but risks are ‘still lingering’. The ECB went deeper in negative rates in September, so they are unlikely to be raising rates any time soon.  

Oil’s volatility continued yesterday as it was reported that OPEC+ are contemplating cutting production by 600,000 barrels per day. Russia are not on board with the cuts. Earlier in the week there was chatter of a larger cut, as there was a report which mentioned production potentially being curbed by 800,000 to 1 million barrels.           

At 7am (UK time) German industrial output will be posted and economists are expecting a decline of 0.2%, which would be a big drop off from the 1.1% posted in November. Keep in mind the German factory orders reading yesterday was disappointing as it showed a 2.1% fall in December.

French industrial output is expected to swing from 0.3% in November to -0.3% in December. The report will be posted at 7.45am (UK time).

The highlight of the session should be the US non-farm payrolls report. The update is expected to show that 160,000 jobs were added last month, which would be an improvement on the 145,000 that were posted in December. The unemployment rate is tipped to hold steady at 3.5% - which is a fifty year low. Yearly average earnings are tipped to come in at 3%, and that would be a slight increase on the 2.9% reading of December. The US labour market is clearly in great shape so it might be difficult to keep adding jobs at a sizeable rate. Traders are paying more attention to the wages component these days as workers who earn more tend to spend more. The figures will be posted at 1.30pm (UK time). It is worth remembering that yesterday the jobless claims rate fell to 202,000, while on Wednesday the ADP report was 291,000.   

Canada will release their jobs data at the same time as the US report is published. The unemployment rate is tipped to hold steady at 5.6%, while the employment change is expected to show an increase of 15,000.  

EUR/USD – has been pushing lower since late December and while it holds below the 50-day moving average at 1.1093, the bearish move might continue. Support might be found at the 1.0900 area. A break above 1.1172 should pave the way for 1.1249 to be retested.

GBP/USD – while it holds above the 1.2900 area the wider positive move should continue. A break above 1.3284 should pave the way for the 1.3500 area to be retested. A break below 1.2900 should pave the way for 1.2768 to be tested.  

EUR/GBP – surged on Monday but while it holds below the 0.8600 mark, the broader bearish trend is likely to continue. A drop below 0.8387 might bring 0.8276 into play. Resistance might be found at 0.8600. 

USD/JPY – has pushed higher and while it holds above the 50-day moving average at 109.24 the wider bullish trend should continue, and it might retest the 110.00 area. A move below 108.30 might put 107.65 on the radar.


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