With both Tokyo and London markets closed for bank holidays this morning, what could potentially be a pivotal week for currency markets has started off in relatively subdued fashion, with the greenback on firmer footing as the euro makes up for its absence in the big dollar’s recovery at the end of last week. Despite the final manufacturing PMI reading for the Eurozone in April coming in slightly better than the initial flash estimates, the common currency’s inability to rally past the 100-day moving average against the greenback last week has EURUSD emanating a distinct offer tone this morning, with the pair edging back into the mid-1.11s. Reform negotiations in Greece have been reported as finally gaining some traction in the aftermath of the cabinet shake-up and changes to the negotiating team, which has helped spreads between Greek and German debt tighten considerably this morning, though the renewed optimism has yet to filter through to the euro.
The DXY is building on last Friday’s bounce due to the softness in the euro, but it will be this Friday’sNon-Farm Payrolls that will be pivotal for the USD moving forward. Strong job gains in April would strengthen the USD bull camp that the March report was an aberration, and Q1 GDP has followed a cyclical pattern of below trend growth, only to snap back and pick-up steam in future quarters. A soft employment report would shake market confidence and increase the likelihood growth in subsequent quarters of 2015 will have a hard time picking up the slack created by the stall-speed growth in the first quarter, and reinforce the challenges the Fed will have in finding an opportunity to hike rates before the end of the year. The reverberations felt throughout currency markets should a large deviation outside of the median analyst expectation occur could be substantial, so make sure to speak to your dealing teams leading up to the announcement as how best to position preceding what has the potential to be a volatile conclusion to the week.
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