FX market outlook

FX market outlook

Eyes on US jobs report and Brexit developments; Asian equities rally

Here are the latest developments in global markets:

·         FOREX: The dollar rallied overnight against its counterparts on news that US lawmakers agreed to temporarily extend the government spending bill, a day before the deadline on Friday. The pound was on track to post a second day of gains as concerns over a hard-Brexit calmed after the UK and the EU appeared to be reaching a preliminary deal on key elements of the divorce. On the other hand, the euro was heading for a second consecutive weekly loss in the face of a strengthening dollar, while upbeat Chinese trade data did little for the aussie which edged down to a fresh six-month low.

·         STOCKS:  The Nikkei 225 added to yesterday’s sharp gains, finishing the day higher by 1.4%; other Asian markets were also on the rise with Hong Kong’s Hang Seng being last up by 1.3% as upbeat Chinese trade data boosted sentiment in the region. Euro Stoxx 50 futures traded 0.6% up at 0747 GMT. Dow and S&P 500 futures were up by 0.1% and Nasdaq 100 equivalents traded higher by 0.5%.

·         COMMODITIES: Oil prices were steady on Friday as a rising dollar offset gains from higher demand from China, which is likely to take the place of the world’s biggest crude importer this year. WTI crude stood at $56.68 per barrel and Brent inched up to $62.27. Gold was 0.25% up on the day at $1,249.30 per ounce, but still not far above the 4-½-month low it touched yesterday.

Major movers: Pound breaks 1.35 as Brexit fear go away; dollar hits fresh highs

After several days of intense talks, the European Commission announced early on Friday that sufficient progress has been made in Brexit talks as both sides reached an agreement on the Irish border issue, flagging that trade talks could begin after a formal approval of the deal at the EU summit starting on December 14. Pound/dollar surged to a four-day high above 1.35 (+0.25%).

The euro dipped to a fresh two-week low of 1.1735 on the back of dollar strength but persisting political uncertainty in Germany also acted as a drag on the currency, with the latest news stating that some members of Merkel’s inner cycle pressed for a minority government despite Merkel’s desire to govern with a stable majority. Besides that, trade data out of Germany failed to provide support as the trade surplus stood below expectations.

Chinese trade figures, though, came in better than expected, with the surplus increasing to a three-month high. Despite encouraging numbers, the aussie inched down to 0.7500 (-0.09%); Australia and China are major trading partners.

The dollar approached the 114 key level, breaking a three-week high of 113.90 (+0.41%). Against a basket of six major currencies, the dollar climbed by 0.20% to a fresh 2-½ -week high of 93.95 (+0.28%).

Day ahead: US jobs report, UK manufacturing output and Canadian housing starts on the agenda; Brexit developments eyed

The UK will see the release of October industrial and manufacturing output figures at 0930 GMT. Data on the nation’s goods trade balance for the same month will be made public at the same time as well.

Housing starts for the month of November out of Canada are due at 1315 GMT, but the main release of the day is the US jobs report scheduled for release at 1330 GMT. The world’s largest economy is expected to have added 200k positions in November, with the unemployment rate anticipated to remain at 4.1%, its lowest since late 2000. Average earnings, which are likely to attract more attention, are projected to grow by 0.3% m/m after October’s zero growth. The US will also see the preliminary December release of the University of Michigan’s survey on consumer sentiment at 1500 GMT.

Following reports on a deal on the Irish border, a key issue holding Brexit talks from progressing, developments on this front will be closely watched. UK PM Theresa May is in Brussels and is expected to be holding meetings with EU officials. A press conference will follow after her meeting with European Commission President Jean-Claude Juncker. Sterling has proved incredibly sensitive to Brexit developments.