Talking Points
Com-dollars continue to get pounded
UK Construction PMI shows contraction but stays above 50
EZ PPI jump puts more pressure on ECB
NFP is Key
Yesterday we noted that Given the fact that yesterday Chicago PMI numbers beat forecasts by a whopping 5 points, the market is now primed for an upside surprise and a lack of one could pressure the dollar for the rest of US session. And that indeed is exactly what occurred as the EUR/USD verticalized above the 1.2800 figure in the wake of a surprisingly sharp decline in the index to 54.4. The pair has spent all of its time since them going nowhere as traders squared up for the upcoming release of the US Non-Farm Payrolls due 12:30 GMT. The decrease in the ISM Manufacturing and the jump higher in weekly jobless claims which have consistently hovered above the 320K level throughout the month of Nay, have led many analysts to pare down their estimates of the NFP number. Although the Bloomberg consensus still remains at 170K, several banks now forecast a print of 150K. Therefore, only a material surprise downward (a figure of 125K or less) will likely push the EUR/USD through the 1.2900 level. Conversely, a rise in payrolls above 200K something that very few market player expect - could catch many euro long flat footed and drag the pair below the critical 1.2700 support.
In short NFP remains key. A weak number will put pressure on the Fed to pause in June as talk of overshooting will fill the airwaves. Given the fact that this economic news will be released into the start of the mid term election season in the United States, the pressure on the Fed will not only be economic but political as well. In contrast a strong payroll number will provide the FOMC with a carte blanche to follow the most appropriate monetary path.
While the pressure on the Fed may be to halt the rate hikes in the near term, the pressure on the ECB is quite the opposite. Tonights EZ PPI release confirms the fact that inflation is running rampant in the 12 member region with year over year increase now reaching 5.4% as higher energy prices filter through the system. With the market now convinced that the ECB will act decisively to stem inflationary pressures, the burden pf proof is now on the dollar longs to see if I the Fed will continue to do the same.
