Instead of talking about today’s payrolls numbers today’s focus is on the overnight flash plunge in sterling below 1.2000 against the dollar, which some have put down to a “fat finger” algo trade. Whatever it was it hasn’t helped the negative sentiment currently prevailing in markets about the UK currency, as policymakers both sides of the Channel start to stake out their negotiating positions.

French President Francois Hollande become the latest to stick his tuppence in arguing for a “hard Brexit” as both side mark out their positions in this high stakes game of Jenga. 

The US dollar has also continued to trade higher, above its August peaks as markets continue to price in the prospect of a US rate rise before the end of the year. This US dollar strength has also helped drive the pound even lower to another 31 year low, with bond markets also starting to price in the prospect of higher rates.

Not only have US treasury yields started to edge higher, but German yields have started to do the same with the German 10 year pushing back towards positive territory, while US 10 year yields have edged back towards their September highs. On a short term basis US 2 year yields hit their highest levels since early June after weekly jobless claims came in below 250k.

UK gilt yields have followed suit, after UK Chancellor Philip Hammond announced that the UK government could shift policy away from quantitative easing and look at a more targeted fiscal approach. This shift may make the calculus that much more difficult for the Bank of England if it looks as if they might need to look at taking further stimulus measures, or cutting rates further.

It would appear that for different reasons, markets are becoming aware that the tone of the conversation appears to be shifting away from monetary policy, which may suggest that QE may be getting closer to the end of the road.

This upward pressure on yields could well increase today if this afternoon’s US payrolls number for September comes in anywhere near to, or above expectations, and wages start to show signs of accelerating.

The rise in yields also appears to be limiting the upside on stock markets pushing prices down as US markets initially followed European markets lower yesterday, before pulling off their lows into the close. This rebound off the lows in the US looks set to see European markets open higher this morning.

The improvement in UK economic data appears to not be cutting much ice with currency markets as the pound continues its declines, making a new 31 year low for the fourth day in succession.

Today we will get to see more data for the UK economy in the form of industrial and manufacturing production for August. Expectations surrounding this are expected to be positive given the sharp bounce back seen in the August PMI’s with both numbers looking to see gains of 0.1% and 0.4% respectively.

The trade deficit is also expected to narrow to £4bn in August.

US yields could edge even higher today if the September payrolls report comes in anywhere close to, or beats expectations.

After a disappointing August number of 151k we are expected to see an improvement to 171k for September, particularly since we saw a decent employment component in this week’s ISM services number.  A number over 200k would further enhance the bullish sentiment surrounding US rate hike expectations.

The unemployment rate is expected to remain at 4.9%, but it is the wages data that will be closely monitored with average hourly earnings expected to rise 0.3%, up from 0.1%, in August, while on annualised basis a rise of 2.6% is expected.

EURUSD – drifting towards the lower end of the triangular consolidation at 1.1150 and could well head lower. A break either side of 1.1150 and 1.1290 could well trigger a sharp 200 point move in either direction.

GBPUSD –  a flash crash overnight saw the pound plunge below 1.2000 and another 31 year low overnight. We need to recover back above the 1.2500 area, and regain a foothold back above 1.2850 to stabilise. With sentiment so bearish it still remains susceptible to a short squeeze back towards the 1.3000 level.

EURGBP – flashed up towards 0.9300 overnight before snapping back and dropping below 0.9000. This now becomes resistance. Support sits all the way back down at the 0.8780 level delays and argues for a move back towards the 0.8720 level.

USDJPY – continues to pull away from the 103.20 level and looks set to head towards 104.30 and the September highs. The 102.20 area should now act as support for this move.

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