The US dollar was mixed Friday. The greenback advanced against the commodity currencies (CAD, AUD AND NZD) edging higher against the CHF, but was lower agains the JPY and the EUR. The GBP deserves a special mention as positive Brexit rumours pushed it 0.61 percent higher against the USD. The American currency lost momentum as the U.S. non farm payrolls (NFP) headline jobs number disappointed with a 130,000 added positions, instead of the forecasted 188,000.
The USD was boosted by solid fundamentals that keep pricing in a fourth rate hike in 2018. The Columbus Day holiday in the United States will shorten the trading week. US inflation data points will be the highlights with US PPI on Wednesday October 10, and US CPI on Thursday October 11.
- UK GDP to slowdown at 0.1 percent
- US PPI forecasted to bounce back to 0.2%
- US inflation steady at 0.2 percent
Dollar to Look for Inflationary Clues
The EUR/USD is flat on Friday ahead of the long weekend in the United States. The single currency is trading at 1.1514 awaiting a long weekend and a short trading week. The US currency was supported by Fed member speeches that continue to support a fourth rate hike in 2018.
The Fed raised rates on September 26 by a quarter of a percentage point and barring a sharp decline in economic indicators will do so again in December. The path for the US dollar for the end of the year will be unobstructed, but as 2018 begins to wrap up the strong dollar narrative is raising doubts.
In Europe Italian budget concerns once again rose despite the government conceding to lower budget deficits in 2020 and 2021. The budget concessions also came with lower growth forecasts that pressured the stock market and sent Italian yields higher. The EU is unlikely to accept the budget without further changes, but the political climate could further complicate things.
The EU could be fighting in two fronts. Brexit negotiations are ongoing, and despite some positive signs, are nowhere near an agreement. Opening another front by shooting down the Italian budget could be a replay of the Greek drama in 2010 but at a much larger scale.
Loonie Falls Despite US Jobs Report Miss
The Canadian dollar fell against the US dollar on Friday despite a rebound in Canadian employment numbers and a miss in their American counterparts.
The loonie did advance against the greenback when the NFP report and the Canadian employment numbers were announced but as traders looked ahead to the long weekend they reduced their short US dollar exposures.
Canada added 63,300 positions in September driven by part time employment. The gain offset last month’s losses of 54,100 jobs that were also part time positions. The Bank of Canada (BoC) will have another solid datapoint to validate its upcoming monetary policy meeting that is being priced in at 85 percent probability of a rate hike.
The Canadian dollar is on track to end 0.29 percent lower versus the US dollar. Despite the headline jobs miss on the NFP report, the revisions and more importantly the inflation components still support a Fed rate hike in December. The CME’s FedWatch tool shows a 81.7 percent probability, down slightly from 83.3 percent yesterday.
Gold Higher on Dollar Stumble
Gold rose on Friday taking advantage of a miss on the monthly U.S. non farm payrolls (NFP) report. The US economy added 130,000 jobs with market forecasts near 200,000 positions added in September.
The yellow metal rose as the market digested the jobs report miss and put the US dollar under pressure.
Gold will hold on to weekly gains but as a long weekend approaches due to the Columbus Day holiday investors will trim their dollar short exposure limiting the upside for commodities.
The weakest US jobs report this year took a toll on the US dollar. The headline miss was only part of the story, wages grew as much as expected and while the lower numbers this month do not raise questions on a December rate lift by the Fed it does affect the intensity of the market focus on next week’s inflation indicators.
Oil Higher until OPEC-Russia Confirm Production Increase
West Texas Intermediate is rising 0.55 percent on Friday, with Brent making a smaller upwards move at 0.05 percent. Question marks about how and when will energy producers increase production to cover the supply fallout from the official start of US sanctions against Iran.
The sanctions start on November 4, but already Iranian exports have fallen given how the US communicated that it would not tolerate any cooperation.
The Trump administration has called out the OPEC for not doing enough to keep crude prices low, but ironically it’s the sanctions imposed by the administration that have put oil prices higher.
On a weekly basis WTI and Brent have advanced ore than 2 percent as US Secretary Rick Perry has taken off the table the option to use the emergency oil reserves to bring prices down.
Reports circulated that Russia and Saudi Arabia are ready to increase oil production, but if they have agreed they said nothing after the OPEC met with major producers on September 23 in Algiers.
Oil prices will continue to fluctuate upwards until there are confirmations that energy producers are ready to offset the lost supply from Iran.
The weekly crude inventories report will be published on Thursday at 11:00 am EDT due to the Columbus Day holiday in the states.
Market events to watch this week:
Wednesday, October 10
4:30am GBP GDP m/m
8:30am USD PPI m/m
Thursday, October 11
7:30am EUR ECB Monetary Policy Meeting Accounts
8:30am USD CPI m/m
11:00am USD Crude Oil Inventories
Friday, October 12
10:00am USD Prelim UoM Consumer Sentiment
*All times EDT
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar 
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