US markets closed last night pretty much unchanged from the end of last week, ahead of the release of the delayed September employment report, later today.
This is expected to translate into a fairly low-key European open
with a slight bias to the downside.
Unfortunately today’s report is unlikely to offer much in the way of clues
as to how Fed policy is likely to unfold over the coming months. Coming as it does off a disappointing August payrolls number the probability of a sustained US dollar rally, given recent events seems a faint hope.
The fact is even if we get a +200k number, which seems improbable
, the likelihood of a clear picture for the October number seems unlikely
in just over a week’s time, given the government shutdown over the last three weeks.
On the other hand a number that misses to the downside will simply reinforce the belief of no taper simply because the October number is unlikely to be significantly better, and probably likely to be worse, undermining the US dollar even more.
Expectations are for an increase to 180k from 169k
, while the unemployment rate is expected to remain at 7.3%, but given FOMC member and Chicago Fed President Charles Evans comments
yesterday, it’s going to take at least two more employment reports to get any idea of how much damage the recent shutdown has done
to the US economy, with estimates that at least 1% has been shaved off annual GDP.
Even then it is unlikely that we’ll see any tapering this side of the next debt ceiling
deadline on February 7th, and for this reason alone equity markets look likely to remain well supported.
One number which will be closely watched is the labour participation rate
which hit a 35 year low in August at 63.2%. If that continues to deteriorate then that will reinforce the belief that the Fed will keep current policy unchanged for a lot longer than we all currently think.
Before that we have the latest public finances data from the UK for September
which is expected to improve from the £11.5bn seen in August. Some of the recent shine has come off the pound in recent days as concerns about the sustainability of the economic recovery have started to rise to the surface.
The recent disappointing ONS industrial and manufacturing production data
for August has raised some doubts about the performance of the economy in Q3
, despite this data remaining the exception given how encouraging recent independent CBI and Markit data, has been and continues to be.
– the euro appears to be finding some resistance near the highs this year at 1.3710, having pulled back from there late last week. With dips continuing to be bought into the risk remains for a break above the 1.3710 level, which would argue for a move towards the 1.4000 level.
The key support area continues to remain at the 1.3450/60 area, with only a break below the 1.3450/60 area which has acted as support this month would signal a move towards the 1.3320/30 level.
– despite a brief dip to 1.5890 last week we’ve seen a sharp rebound back through the 1.6000 area which suggests we could well be set for further sterling gains towards 1.6300. The key resistance on the upside remains at the 1.6325 trend line from the 2009 highs at 1.7045.
– the 0.8500 area continues to act as a bit of a barrier with the 200 day MA at 0.8524 behind the highs this month. While below this key barrier the bias remains for a move back towards the 0.8420 area in the short term. A move back below the 0.8420 area retargets the 0.8280 level.
– we continue to get price compression between 99.65 trend line resistance from the May highs at 103.75 and the 200 day MA at 97.15. A clear break below the 200 day MA and the lows this month could well trigger further US dollar losses towards the August lows at 95.80.
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