USD and equities reverse gains ahead of NFP

It is NFP Friday and the US dollar continued to lose ground against the majors, while emerging market currencies stabilised. The dollar index was off 0.68% yesterday with investors starting to wonder whether the dollar rally is overdone. In overnight trading the index fell another 0.25% as most G10 currencies regained some ground. The solid US data released yesterday failed to give a lift to the greenback. Markit manufacturing PMI unexpectedly rose to 54.1 in November from 53.9 (flash PMI), while the market was expecting a reading of 53.9. Construction spending came in slightly below median forecast, printing at 0.5%m/m in October versus 0.6% expected. Finally, ISM manufacturing rose to 53.2 compared to 52.5 expected and 51.9 in October. The manufacturing industry has been showing some sign of stabilisation over the last few months as various measures continue to recover. However, the sector is still extremely sensitive to the strength of dollar and should quickly move back to contraction in the event of further strength.

Amongst the G10 complex, the dollar fell the most against the pound sterling and the single currency. The cable surged 0.35% to 1.2649 in Tokyo, while the euro was up 0.14% to 1.0690. After failing to break the 1.02 resistance level earlier this week, the Swiss franc moved lower and traded range-bound at around 1.01. EUR/CHF gathered positive momentum in the medium-term, suggesting further gains ahead. However, the upcoming ECB meeting on December 8 remains a major downside threat for the currency pair as further monetary easing from the ECB would accentuate buying pressure on the Swiss franc, which would force the SNB to step in.

In the equity market, investors switched to risk-off mode ahead of today’s NFPs. Asian regional markets were blinking red across the screen with the Nikkei and Topix indices falling 0.47% and 0.36% respectively. In China, the picture is not brighter with the Shanghai and Shenzhen Composites sliding 0.90% and 1.66% respectively. In Europe, equity futures followed the Asian lead and were broadly trading in negative territory. German shares were down 0.49%, while British ones fell 0.79%. In Switzerland, the SMI was off 0.21%.

Today traders will be watching unemployment rates from Norway, Canada and Spain; industrial production from Brazil; change in nonfarm payroll, unemployment rate, participation rate and average hourly earnings from the US.

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