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Nonfarm payroll numbers for the U.S. were released this morning at +266k vs. the +180k estimate. The miss to the upside makes it feel like an early holiday, the Black Friday equivalent for jobs where everybody who wants one can find one. Private payrolls outperformed as well with a gain of 254k vs. the 178k estimate. And lastly the unemployment rate dropped from 3.6% to 3.5%. With all the optimism over jobs it’s no surprise that today’s Consumer Sentiment report came in above expectations at 99.2 compared to the 97.0 estimate.

The U.S. dollar moved sharply higher after the strong data, lifting the Dollar Index by 0.39%.

Meanwhile Canadian jobs data reported today was straight out of a Grinch story. The Net Change in Employment number, forecast at +10k, was reported at -71.2k and the unemployment rate spiked from 5.5% to 5.9%. Canadian unemployment has convincingly broken the trendline to the upside, in place since late 2015.

The Canadian dollar has declined the most today vs. the U.S. dollar among the major currencies at -0.68%. Other key moves are: EUR -0.50%, CHF -0.44%, and GBP -0.36%.

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The pound is the biggest mover today having gained 0.73% vs. the USD. The GBPUSD finally broke above key resistance at 1.3000 after three previous failed attempts (21 Oct, 31 Oct, and 18 Nov). Today’s break higher is the follow-through of the classic technical pennant pattern which is characterized by several attempts at resistance combined with smaller retracements. The pound is now trading at the highest level since May of this year and is now targeting next resistance at 1.3175. It’s also worth noting that the GBP has the largest YTD gain against the USD at 3.86%. The UK general election is now just over a week away (12 Dec) and conservatives continue to dominate voting polls.

As expected, the Bank of Canada kept rates steady (1.75%) at its policy announcement today and struck a positive note with their view that the global economy is showing signs of stabilizing. The Canadian dollar strengthened by as much as 0.43% following the report.

The dollar is mostly lower today, -0.50% vs. the CAD, -0.44% vs. the MXN, -0.24% vs. the EUR. The dollar has come under pressure recently following a string of disappointing economic data reports. Today mortgage applications were reported at -9.2%, ADP Employment was reported at 67k vs. the 135k estimate, and the ISM Non-Manufacturing Index disappointed at 53.9 vs. the 54.5 estimate.

Meanwhile, as the U.S. Congress maintains its laser focus on impeachment investigations (think Wendy’s ‘Where’s the Beef’ commercials), the NATO summit has produced more division than alliance, North Korea has resumed its belligerent language, combined with ongoing regional unrest in Iran and Hong Kong and the US/China trade dispute.

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The pound sterling is higher today, gaining 0.44% vs. the dollar on reports that fellow Conservatives have pledged to support PM Johnson’s Brexit agreement if elected at the 12 Dec general election. The pound has now strung together six consecutive daily gains and is up 1.45% against the dollar over that period. The GBPUSD has gained 6.15% since October 10^th when the UK/Ireland announced a possible ‘pathway’ to a Brexit deal that would take Northern Ireland out of the EU’s customs union (a key UK requirement), but have no customs checks at the Ireland/North Ireland border itself (a key EU requirement). From a distance the sense is that the terms for an orderly Brexit are falling into place and that the Conservative party will have the votes needed following the December 12 election to implement PM Boris Johnson’s Brexit agreement with the EU. GBPUSD vols have retreated from 14.1872 (October 24^th) to 7.3822 today, a clear signal of increased optimism for the UK and GBP.

The USDJPY is trading near the day’s lows after reports that China is pessimistic that a trade deal can happen before the end of the year due to President Trump’s unwillingness to begin rolling back recent tariffs. China has also hinted at pausing trade negotiations until the outcomes from the impeachment hearings and next year’s US general election are known. Resistance for the USDJPY remains at 109.50 and support at 108.00.

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Deal or no deal: Optimism following last Thursday’s announcement of a phase one agreement between the U.S. and China to begin walking back tariffs on each other’s goods has now been thoroughly deflated. On Friday President Trump struck a discordant tone with his comment that ‘They’d like to have a rollback, I haven’t agreed to anything’, reversing an earlier report from the White House that an ‘agreement in principle’ had been reached.

Disappointment stemming from the mixed signals on trade negotiations and an escalation of violence against protesters in Hong Kong over the weekend created enough uncertainty to drive flows into the ‘safe haven’ currencies (JPY +0.25%, CHF +0.19%) reducing investor appetite for risk and spurring outflows from MXN (-0.25%).

The biggest declines in trading today against the dollar are concentrated in the Asian currencies with the KRW leading the way lower at -0.79%, the PHP -0.73%, and smaller losses in the IDR, CNH, INR, MYR, SGD, CNY, TWD, and HKD.

With the UK’s general election only 31 days away, focus is turning to electorate polling to gauge how the Conservatives (and by extension Brexit) are faring in the leadup to the December 12^th vote. Polls published on Sunday show Conservatives holding a 12%-13% lead over Labour, which suggests PM Boris Johnson will resume his government with additional support in Parliament.

Today is the Veteran’s Day Holiday in the U.S. so volume is expected to be light. While banks will be closed, GPS will be open for trading.

Americas

The US Dollar Index is lower today by 0.21% after encountering resistance yesterday at the 100-day moving average. Today’s decline is a repeat from last week when dollar bulls failed to push the dollar past the 100-day resistance.

Looking at the dollar’s performance against the G10 currencies, the primary declines are against the SEK (-0.48%) and NOK (-0.40%), unchanged against the GBP, and negligible advances vs. the CHF and CAD (+0.12%).

Oil is lower today by 0.24% following a 3-day advance where the price per barrel gained 5.63%. Today’s weaker Canadian dollar looks tied to retreating oil prices.

The dollar is marginally stronger today against the Mexican peso (0.17%) as the USDMXN continues to trade just above long term trendline support at 19.1000. The USDMXN has been in a tight 19.0500-19.2500 (~1%) intraday range for two weeks while making several attempts to break below the 19.1000 key support. Above 19.2500 the next resistance is seen at 19.3500.

Pound sterling volatility continues to retreat from its multi-year high of 14.1872 reached on 24 Oct, currently at 13.0566. While still high by historic standards, treasury managers and traders at least have a short respite from the recent swings in GBP exchange rates ahead of the UK snap election set for December 12^th.

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Overnight trading was quiet with the market in a holding pattern ahead of the FOMC’s policy rate announcement later today. Results for the dollar are mixed, losing ground against the CHF (-0.14%) and GBP (-0.06%), unchanged vs. the JPY, and gains against the EUR, DKK, NOK, AUD, SEK, and CAD.

The dollar’s biggest advance today is vs. the CAD, with the USDCAD currently up 0.46%. The Bank of Canada announced its rate policy decision today, leaving rates unchanged but downgrading the economic growth outlook.

The FOMC is set to announce its rate policy decision today at 2PM and is expected to deliver another 25 basis-point cut to a target range of 1.5%-1.75%.

Americas

The US Dollar Index is setting up to close October with a loss, currently trading down 1.62% but off the month’s low of 97.141 (-2.25%).

It’s a busy week in terms of economic data for the U.S. starting with tomorrow’s Consumer Confidence Report and Pending Home Sales, Wednesday’s quarterly GDP and the FOMC’s rate decision, Thursday’s Personal Income, and Friday’s Employment Situation Report.

Tomorrow the FOMC begins its 7^th scheduled 2-day meeting for the year and is expected to cut the Fed Funds Rate on Wednesday by 25 basis points from the current 1.75%-2.00% range to a 1.5%-1.75% target range. The probability for a cut is currently 90.9%.

Today the European Union granted the U.K. a three-month Brexit extension to January 31^st. The original deadline was set for October 31^st. The pound responded mildly to the deadline extension with the GBPUSD +0.22% for the day.

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Disappointing ISM data released yesterday has fueled expectations for a rate cut at the FOMC’s next policy announcement on October 30^th. The probability for a rate cut now stands at 69.8% compared to a week ago when it was only 51.7%. The prospect of a lower return for holding dollars spurred dollar selling yesterday and continues to weigh on the dollar today.

Yesterday the U.S. Dollar Index traded as high as 99.667, tantalizingly close to the psychological 100 level, but has since dropped 0.50% to 99.171.

Central banks globally have almost universally adopted an easing stance (rate cuts) this year as there have been a total of 97 cuts and only 17 hikes year-to-date. August alone saw 22 cuts and 0 hikes.

The dollar’s biggest decline today vs. the majors is against the JPY at -0.34%, followed closely by a 0.31% drop against the ZAR, and smaller losses against the DKK, EUR and NZD. The dollar has gained on the CHF (+0.57%), CAD (+0.43%), and a string of insignificant gains against the SEK, NOK, AUD, and GBP.

ADP Employment data released today came in at +135K, below the expected +140K. Perhaps more important is that last month’s reported +197K was revised down to +157K, a significant downward revision. All eyes now turn to Friday’s Employment Situation Report where Nonfarm payrolls are expected to increase by 147K.

EURUSD: Continues to trade in a well-defined downtrend, starting February of 2018 high of 1.2555 to September’s low of 1.0883, or a decline of 13.32%. A dovish ECB, an uninterrupted string disappointing economic Eurozone data, and declining sentiment will continue to pressure the EUR.

Resistance:

1.1000, 1.1025, 1.0964

 Support:

1.0875, 1.0825,1.0800

Americas

The U.S. Dollar Index closed out Q3 with a gain of 3.38% and for September was up 0.47%. The dollar has gained 12.41% in a string of modest monthly gains since the February 2018 low of 88.253. The dollar’s strengthening trend remains intact as it approaches resistance at 100.00 and higher at 102.25.

After some seesaw action driven by surprise headlines (drone attack on Saudi oil fields, Trump impeachment process, UK Supreme Court ruling against PM Johnson, fresh trade tensions between the U.S. and China) the market ultimately decided that the global environment still favored a ‘risk on’ approach. For September the Russian ruble closed with a gain of 2.95% vs. the dollar and the Mexican peso closed higher by 1.67%. Conversely the ‘safety’ currency Swiss franc closed lower by 0.73% against the dollar and the Japanese yen dropped 1.67%.

Now that we have reached October the market’s focus turns to the UK’s Brexit deadline on the 31^st. As if on cue Pound sterling intraday volatility is higher today (17.23) as the GBPUSD first declined 0.88%, quickly followed by a gain of 1.11%, then another loss of 0.65%. Support is at 1.2200 and lower at 1.2025. Resistance is seen at 1.2350.