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GBP: A close eye on the services PMI data. The manufacturing series was modestly better than expected and this gave sterling a decent lift in the middle of the week to 1.5606 Fibonacci level on cable, which remains the upside level to watch.

USD: The employment report today will keep ranges on the tight side ahead of the numbers. Market looks for 140k gain in headline payrolls, although the recent run of data suggests we could see a softer number.   Unemployment rate is seen steady at 7.6%.

Idea of the Day

Thursday was a roller-coaster of a day thanks to the ECB.   The fact that the more outsized reaction initially was on the yen suggests the market was wrong-footed on several fronts by the initial positive reaction turning into a negative one for the single currency.   Naturally, the focus today is with the US employment report.   There was a strong trend earlier the year towards the dollar correlating positively with data surprises, so strengthening if activity data was above expectations.   This has diminished of late, but remains in place, so if data is softer than expected, the dollar is likely to weaken, but not drastically so.   In the FX market, positioning should be less extreme, with yesterday seeing a shake-out of dollar short positions.   Our blog on the implications of the ECB decision can be read (here).

Latest FX News

JPY:  The yen was the one initially suffering in the wake of the ECB decision as it was the favoured route for turning around short dollar positions. Has been remarkably steady overnight tight to the 98.00 level.

USD:  After 5 consecutive days of decline on the dollar index, the sense was that shorts wanted to cover ahead of payrolls today with the yen initially suffering the most in this move.   The dollar index has recovered around half of the declines seen over the previous 5 days.

AUD:  Not a good week for the Aussie even though we’ve been in a weak US dollar environment for the most part. This underlines some of the structural forces underneath that are pushing AUDUSD towards the lower end of the established 1.02 to 1.06 range.

EUR: A roller-coaster. Main ECB rate cut 25bp.   Deposit rate left unchanged and this allowed initial rally. The euro was lower on the unlimited repo allotments for next year then tumbling on the ECB President’s warming towards a negative deposit rate.