TUESDAY: CALM BEFORE THE STORM?
Investors can expect a lighter release schedule on Tuesday as they brace for a more active second half of the week headlined by US jobs data and central bank speeches.
Action begins in Europe at 07:00 GMT with a report on Spain’s unemployment situation. The total level of unemployed is expected to rise by 21,300 for September, following an increase of 43,300 the month before.
At 08:30 GMT, CIPS and IHS Markit will produce the monthly construction purchasing managers’ index (PMI). The report is expected to show a slight weakness in industry activity for the month of September.
The European Commission’s statistical agency will report on producer inflation at 09:00 GMT. The monthly PPI is expected to edge up by 0.1%, translating into a year-over-year gain of 2.3%.
Shifting gears to North America, Federal Open Market Committee (FOMC) member Jerome Powell is scheduled to deliver a speech bright and early at 08:30 GMT. Powell was interviewed by President Trump for the position of Fed Chair, which could become vacant this February.
In policy news, the Reserve Bank of Australia (RBA) kept its trend-setting interest rate at a record low of 1.5% on Tuesday. The decision was widely expected by the financial markets. The Australian central bank has remained on the sidelines of monetary policy since August 2016, when it cut rates for the second time that year.
A dovish RBA weighed on the Australian dollar Tuesday, as the AUD/USD dipped below 78 cents. The pair was down 0.4% to trade at its lowest level in around seven weeks. The Aussie has declined roughly 300 pips against the US dollar since 20 September. In the meantime, the greenback has regained momentum against a cross-section of its competitors. The short-term outlook is tilted to the downside as a bearish central bank continues to drive away the bulls.
The euro was back on the defensive Monday, as the US dollar continued to steamroll the competition. The EURU/USD is down more than 100 pips from the Friday high. Prices slipped another 0.2% on Tuesday to trade in the low 1.17 region. The common currency has plunged roughly 400 pips from the 8 September multiyear high. The EUR/USD is testing the 1.1708 daily low from 27 September. On the opposite side of the ledger, resistance is seen at 1.1833.
The USD/JPY broke above 113.00 on Tuesday, reaching its highest level in three months. The combination of improved risk sentiment and caution ahead of the Japanese general election have triggered heavy volatility in the yen. The USD/JPY has gained 4.5% since 11 September. The bulls are now targeting the critical 114.40 region. This level isn’t as far as it appears, given the pair’s strongly bullish bias above the 100-day simple moving average (SMA).