General market theme
The big story yesterday has been the Bank of England’s meeting and their decision to lower interest rates along with other initiatives to support the domestic economy post-Brexit. The MPC decided to lower rates 25bp and also initiated a bond buying program, both governmental and corporate.
The market was caught by surprise by the intensity of the BoE moves and actually investors might have felt that Mark Carney over-delivered, but according to him it’s better to act early and comprehensively in order to reduce uncertainty and bolster confidence.
Today the focus will turn on the US dollar and the Nonfarm Payrolls report that will dictate the price action for the dollar for the days ahead. There are reasons to believe that the report could surprise either to the upside or to the downside, hence we will monitor today’s price action with increased interest.
Price action highlights
The euro edged lower yesterday and lost the 1.1150 support as it dropped towards the 1.1100 area, but the momentum behind the recent downtrend seems to have died out. The euro could stand to gain by any renewed dollar weakness should the NFPs miss today, and a fresh push higher should take the single currency towards the 1.1200 resistance.
On the opposite scenario a push lower below the 1.1100 support level should clear the path for the 1.1050 lows, but that would require a really impressive dollar reaction on the employment data to be released later today.
The cable dropped heavily yesterday on the back of the BoE decisions and the rate settled just above the 1.3100 level overnight, having fallen off the 1.3300 area before the decision. The pound had benefited from the recent dollar weakness and showed a good uptrend that drove the rate above the 1.3300 level, but the intensity of the BoE initiatives left no choice for traders to sell the currency against its peers.
Today we expect further volatility in the pound on the back of the NFP event, so we might want to stay away from this pair until it settles down a bit.
Focus of the day
Undoubtedly the focus today will be on the release of the Nonfarm Payrolls report as investors are eager to find out how the US economy is faring after last month’s rebound. Expectations are set low for the number of jobs added, so we need to brace for a potential disappointment while we should also keep an eye out for the wage growth component that might offset any bearish figures.
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