Today is another NFP Friday so price action was subdued for the most part as traders hunkered down ahead of the U.S. NFP report.
However, the forex market became very lively near the end of the session when the Greenback was rushed by a torrent of sellers after the PBoC announced that the foreign exchange risk reserve requirement ratio of forward sales will be raised from 0% to 20%.
The news also caused the Aussie and Kiwi to jump higher, although the two higher-yielding comdolls were already tilting broadly to the upside before the news, thanks to the risk-friendly vibes in Europe.
- French government balance: -58.9B vs. -55.1B previous
- Swiss CPI m/m: -0.2% vs. -0.3% expected, 0.0% previous
- Spanish services PMI: 52.6 vs. 54.4 expected, 55.4 previous
- Italian services PMI: 54.0 vs. 53.6 expected, 54.3 previous
- French final services PMI: 54.9 vs. no change from 55.3 expected
- German final services PMI: 54.1 vs. no change from 54.4 expected
- Euro Zone final services PMI: 54.2 vs. no change from 54.4 expected
- U.K. services PMI: 53.5 vs. 54.7 expected, 55.1 previous
- Euro Zone retail sales m/m: 0.3% vs. 0.4% expected, 0.3% previous
- U.S. NFP report coming up
Today is another NFP Friday. And as usual, both directional movement and volatility got sapped on most pairs as traders kept their heads down and sat on their hands ahead of the U.S. NFP report.
Well, that was before the forex market got a volatility injection near the end.
Anyhow, if you’re planning to trade the NFP report, then you may wanna check out Forex Gump’s Event Preview for the upcoming NFP report.
PBoC makes a move
The People’s Bank of China (PBoC), China’s central bank, announced late into the session that the foreign exchange risk reserve requirement ratio of forward sales will be raised from 0% to 20%, effective August 6, 2018.
In simple terms, the PBoC would require Chinese financial institutions to put some cash in reserve when buying U.S. dollars through currency forwards.
Such a move therefore makes it more difficult to buy U.S. dollars, especially when the yuan is on a weakening phase.
The move also obviously makes it harder to stop the yuan from appreciating and lessens demand for the Greenback, which is why the Greenback slumped hard on the report.
BOE Carney Speaks
BOE Guv’nah Mark Carney was interviewed by BBC radio near the start of the session.
And Carney said that (emphasis mine):
“I think the possibility of a no deal [Brexit scenario] is uncomfortably high at this point.”
He also said that such a scenario is “highly undesirable” and that the E.U. and the U.K. should do their best to avoid such a scenario, adding that:
“There is a very broad range of potential outcomes to these Brexit negotiations and we are entering a crucial phase.”
However, Carney also dialed down his Brexit-related negativity when he said that a “no deal” Brexit is “a relatively unlikely possibility.” However, Carney also stressed that such a scenario still “is a possibility.”
U.K. services PMI
Markit released the U.K.’s July services PMI report earlier, revealing that the headline reading slumped from 55.1 to a three-month low 53.5. This is a worse-than-expected reading since economist were only forecasting a drop to 54.7.
And commentary from Markit didn’t really help to remove some of the disappointment since new business growth “eased since June and was softer than seen on average” and “Employment growth eased to its weakest for almost two years in July.”
And according to survey respondents, “Brexit uncertainty had held back new business growth in July.”
Moreover, Markit found evidence that “indicated that input cost pressures eased from the nine-month high seen in June.”
In addition, the increase in average prices charged by service providers “was weaker than the trend seen so far in 2018,” which is a bad sign for inflation.
The only positive detail from the report is that Markit found anecdotal evidence pointing to higher staff wages in July.
Some risk-taking ahead of NFP report
Europe is apparently ending the week on an upbeat note since the major European equity indices were broadly higher.
It’s possible that market players were just covering their shorts, given that the major European equity indices have taken a beating due to the prevalence of risk aversion this week.
However, market analysts also attributed the risk-on vibes to strong earnings results for banks, as well as high demand for tech shares sparked by news that Apple is the first public company to be valued at a whopping $1 trillion dollars.
- The pan-European FTSEurofirst 300 was up by 0.59% to 1,522.69
- Germany’s DAX was up by 0.52% to 12,611.22
- The blue-chip Euro Stoxx 50 was up by 0.46% to 3,484.15
U.S. equity futures were also getting some love, but that may change since the U.S. NFP report is coming up.
- S&P 500 futures were up by 0.06% to 2,830.25
- Nasdaq futures were up by 0.13% to 7,395.25
Major Market Mover(s):
The Greenback showed some weakness from the get-go, probably because of profit-taking ahead of the U.S. NFP report.
However, that weakness intensified substantially near the end of the session when the PBoC announced that that the foreign exchange risk reserve requirement ratio of forward sales will be raised from 0% to 20% because, as mentioned earlier, such a move makes it more difficult to buy U.S. dollars, especially when the yuan is on a weakening phase, which means less demand for the Greenback.
USD/JPY was down by 25 pips (-0.22%) to 111.55, USD/CHF was down by 22 pips (-0.22%) to 0.9941, USD/CAD was down by 25 pips (-0.20%) to 1.3011
AUD & NZD
The Aussie and the Kiwi were both buoyed by soft demand for most of the session, likely because of the risk-on vibes and USD weakness.
However, demand really ramped up when the Greenback plunged hard after the PBoC announcement.
AUD/USD was up by 33 pips (+0.45%) to 0.7394, AUD/JPY was up by 27 pips (+0.33%) to 82.48, AUD/CHF was up by 28 pips (+0.39%) to 0.7350
NZD/USD was up by 29 pips (+0.43%) to 0.6754, NZD/JPY was up by 23 pips (+0.31%) to 75.34, NZD/CHF was up by 18 pips (+0.27%) to 0.6714
Watch Out For:
- 12:30 pm GMT: U.S. non-farm employment (+190K expected vs. +213K previous), jobless rate (3.9% expected vs. 4.0% previous), and average hourly earnings (0.3% expected vs. 0.2% previous); read Forex Gump’s Event Preview for the July NFP report
- 12:30 pm GMT: U.S. trade balance (-$46.5B expected vs. -$43.1B previous)
- 12:30 pm GMT: Canada’s trade balance (-$2.3B expected vs. -$2.8B previous)
- 1:45 pm GMT: Markit’s final U.S. services PMI report (no change from 56.2 expected)
- 2:00 pm GMT: ISM’s U.S. non-manufacturing PMI (58.6 expected vs. 59.1 previous)