Forex news from the European morning session - 1 February 2019
Headlines:
- UK PM spokesman: Looking at options to secure changes to backstop in Brexit deal
- Eurozone January preliminary CPI +1.4% vs +1.4% y/y expected
- UK January manufacturing PMI 52.8 vs 53.5 expected
- Eurozone January final manufacturing PMI 50.5 vs 50.5 prelim
- Italy January manufacturing PMI 47.8 vs 48.8 expected
- Ireland's McEntee says that Brexit deal cannot be reopened
- Spain January manufacturing PMI 52.4 vs 50.5 expected
Markets:
- EUR leads, GBP lags on the day
- European equities mixed, mostly lower; E-minis down 0.1%
- US 10-year yields flat at 2.627%
- Gold flat at $1,321.50
- WTI flat at $53.79
- Bitcoin up 0.5% to $3,435
It's non-farm payrolls day and markets settled into a lull for the most part during the European morning as traders and investors wait on US data to come before really breaking stride and making up their minds on further directional moves.
That said, there was a bit of action in the build up to the release of the UK January manufacturing PMI where cable fell in the minutes leading up to the data, falling from 1.3090 to 1.3075 before recovering a little right before the release.
The data disappointed and the details were rather gloomy and that set off further selling in the pound with cable falling to a low 1.3044 before inching back up towards 1.3050-60 levels currently. The selling in the pound helped to prop up the euro with EUR/GBP rising up towards the 0.8800 handle.
The single currency's gains saw EUR/USD move up from 1.1440 to a high of 1.1475 before backing off towards 1.1460 levels currently. Despite the move higher, the trading range for the pair remains relatively narrow ahead of the US jobs report.
Other major currencies lacked direction for the most part with AUD/USD recovering a little from its lows earlier of 0.7237 to trade around 0.7250-60 during the session. Equities and risk sentiment failed to offer any clue for traders as well and that left USD/JPY trapped between 108.80-95 for the most part of the session near flat levels on the day.
Looking ahead, it's all about the non-farm payrolls data and as mentioned earlier I see risks skewed more towards the downside for the dollar given that if the data disappoints, we'll see a follow through move of the selling after the FOMC meeting on Wednesday. But if it comes in as a beat, I wouldn't expect that to have lasting upside pressure for the dollar given that trade talks are still in limbo right now.
Although, I reckon a state of limbo between US and China is very much what the greenback needs to survive for the time being. This is my take on dollar sentiment currently:
"The outlook for the dollar now will hinge on US economic data in my view and also how trade talks will develop. I reckon the latter may have a huge say in where the dollar ends up in the coming weeks. Positive news will likely see markets jump to risk assets and that could precipitate some weakness in the dollar. On the flip side, negative news will feed into the current rhetoric that it will continue to eat at US economic growth and that will also be seen as dollar negative."
