Don't forget that you can now follow Forex.com's research team on Twitter: http://twitter.com/forexresearch
The markets are fairly stable as we wait for the latest payrolls report from the US. Stocks have been fairly flat, and are down just a touch midway through the European session. Within the next 30 minutes we will find out how many jobs the US created last month. In the midst of the European sovereign debt crisis it is easy to forget that the flagging US economic recovery is the other major issue that is weighing on risk appetite right now.
The market consensus is for a 55k increase in jobs; however, there are some technical factors that could skew this month's figures. Last month 45,000 Verizon workers were on strike that may have impacted the payrolls rate, however they went back to work in September so this could have an upward impact on payrolls. But more encouragingly for this month's payrolls print was the increase in the employment sub-index of the September ISM manufacturing survey. This jumped from 51.8 in August to 53.8 last month and tends to track developments in the economy very closely.
Even though solving the European debt crisis and recapitalising the region's banks is the most pressing issue on the markets' minds right now, the US economy cannot be ignored and its health will be crucial for stocks and the future of corporate profits to sustain this rally. In the run up to payrolls the markets in Europe have been extremely quiet. The dollar has had a mixed session, but the euro has managed to hold onto its gains.
The major mover in G10 has been the pound. QE - what QE? Sterling has shrugged off a torrent of bad news: 1, news that the BOE would pump the economy with another GBP75bn, which is traditionally negative for the domestic currency; 2, The Moody's downgrade of 12 UK financial institutions and 3, a story in the FT that RBS would need another bailout and is not strong enough to stand on its own two feet. So it would seem the pound is defying gravity as we move into the end of the week. GBPUSD is testing resistance at 1.5550. Above here opens the way to 1.5620 - 21-day sma then towards 1.6000. The performance of the pound is crucial for the BOE in the coming weeks and months. A weak pound is good for exports, however the Bank may not want to see the pound weaken too much as it would only make imports even more expensive and put further upward pressure on sterling. So it will be a difficult balancing act for the Bank as we move through to the end of the year. On balance we think that QE is negative for the pound and would be a seller on rallies.
It seems like there has been a shift in investors' attitude in recent days and there are early signs of a return of confidence to the markets. However, today's more cautious mood reminds us that Europe's problems are far from solved. The ECB has continued to buy Italian and Spanish debt this week and Italian bond yields have spiked back to the 5.6% area. New ECB President (who takes the helm on 1 November) Mario Draghi was speaking today and said that structural reform is an absolute priority for Italy, yet the Berlusconi government continues to drag its feet on the bold reforms that the market craves.
The German and French leaders are meeting on Sunday to discuss bank re-capitalisations plans. Europe is still at a critical phase, and although bank re-capitalisations are necessary you don't want to put the cart before the horse. Europe needs to deal with its solvency problems and they cannot be pushed to the back burner. Reforms are vital, there needs to be evidence of budget consolidation and a return to competitiveness before we can say with any degree of certainty that Europe has survived the crisis. The fact that German Chancellor Angela Merkel said that Greece will not be on the agenda of the 17-18 October ERU summit worries me slightly, even though the topic of bank re-capitalisation is important to address the EU leaders can't take their eye off the ball and need to come up with a way for the EFSF to be the backstop for solvent sovereigns in the currency bloc so that Spain, Italy and France don't get dragged into the fray further down the line.
United States 13:30BST (0830 ET) Change in Nonfarm Payrolls (Sep) 55K EXP, 0 LAST
United States 13:30BST (0830 ET) Change in Private Payrolls (Sep) lvl 90 K EXP, 17K LAST
United States 13:30BST (0830 ET) Unemployment Rate (Sep 9.1% EXP, 9.1% LAST
United States 14:30BST (0930 ET) Fed's Fisher Speaks
United States 15:45BST (1045ET) Fed's Lockhart Speaks
United States 20:00BST (1500 ET) Consumer Credit (Aug) USD $8BN EXP, $11.96BN LAST
Kathleen Brooks| Research Director UK EMEA | FOREX.com
d: +44.(0).20.7429.7924 | f: +44.(0).20.7929.2010 | M: +44 (0) 7919.411.957 | e: email@example.com| w: www.forex.com/uk
23 College Hill | 3rd Floor | London EC4R 2RT
Now you can follow us on Twitter: http://twitter.com/forexresearch
Disclaimer: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that FOREX.com is not rendering investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. FOREX.com is regulated by the Commodity Futures Trading Commission (CFTC) in the US, by the Financial Services Authority (FSA) in the UK, the Australian Securities and Investment Commission (ASIC) in Australia, and the Financial Services Agency (FSA) in Japan.