Key factors currently driving the FX market:
· November NFPs print underwhelmed the market
· US manufacturing activity overshot expectations, posting a high not seen since 1997
Major currencies saw mixed performance heading into the weekend. The steepest losses were recorded by the New Zealand dollar (-1.67%), the Australian dollar (-0.99%), the British pound (-0.79%), and the Canadian dollar (-0.37%). On the other side of the FX spectrum, the Swiss franc (+0.71%) and the Japanese yen (+0.40%) outperformed.
The EURUSD pair rose 0.05% to 1.1306 on Friday, December 3. Heightened market volatility was triggered by the release of the non-farm payrolls report during the North American session.
The US economy added 210,000 jobs in November, falling far short of the average forecast that called for 550,000. However, the unemployment rate fell to 4.2% in November from 4.6% in the previous month (vs. 4.5% expected). The participation rate came in at 61.8% compared to 61.6% a month earlier. Average hourly earnings decreased to 0.3% MoM and 4.8% YoY from 0.4% MoM and 4.9% YoY. The drop in November unemployment gives the Fed leeway to speed up tapering bond purchase at its meeting on December 14-15.
Macro data (GMT+3)
By the time of writing, major currencies were showing multidirectional movement. The euro, franc and yen are trading in the red, while the Antipodeans and the loonie are in the green. After Friday’s payrolls, traders have turned their attention to the upcoming FOMC meeting. They expect the US regulator to boost its QE taper to $30 bln a month from $15 bln.
There is also a negative factor that prevents buyers from buying into risk assets. The shares of the Chinese developer Evergrande collapsed after the 30-day grace period for coupon payments ended. Evergrade needs to repay liabilities totaling $82.5 mln. The company is said to have entered into debt restructuring negotiations.
Meanwhile, the US has warned of an impending default at the end of December. The government may not be able to meet its financial obligations unless Congress raises the public debt ceiling by December 21. This will also put pressure on risk-sensitive assets over the coming days.
EURUSD is trading around the 45-degree angle of the Gann fan at 1.1275. This level coincides with the trendline from a low of 1.1186. Price action continues to hover in the November 30 range of 1.1235-1.1383. Major players can start hunting for stops that are outside this channel. How this process plays out will determine whether the pair closes lower or higher in December.
Monday’s news flow looks thin. We expect EURUSD to keep trading sideways until Tuesday. The key cross currency has been on the rise since November 24. This means that if the main pair continues to recover, buyers should be able to muster a rally to 1.1350. If the Evergrande saga deteriorates, the euro will be forced to retreat. Also in the spotlight is the US debt ceiling issue, which will also put pressure on the euro.