Volatility has returned as foreign exchange and equity markets fight for positioning amid the recent “bond rout.†The euro hit a ten week high overnight, tracking European bond yields higher and benefiting from another sell-off in the US dollar. Trade remains unstable on Thursday, one day following comments from Fed Chairman Yellen who warned of high equity valuations.
Thursday is election day in the UK and the results are anyone’s guess. David Cameron’s Conservatives are in a dead heat with Ed Milliband’s opposition Labour Party, indicating neither will win enough seats for an outright majority in the 650-seat parliament. The pound lost a little ground early on but has since recovered and is trading steadily.Tomorrow, the US releases its April jobs report which is hotly anticipated following March’s very poor result of only 126k new jobs.
The Asian markets kicked off with Australian employment figures for April. Employment fell 2.9k versus expectations of 4.0k, but past revisions were higher and the unemployment rate jumped to 6.2%. The Aussie dollar rose nearly 1% following the reports, tracking other major currencies on this most recent advance on the greenback. It was an otherwise quiet trading session, even into European hours. Global equities are all tracking lower despite this bit of news as markets remain extremely unsettled as weeklong sell-off in government bonds shows no signs of letting up.
Economic data was very limited during European hours, as equities and bonds led the way lower for the euro. With little news out of the UK concerning the election, the pound remains firm. The euro is losing ground after touching a ten week high during Asian hours. Lower than expected German factory orders cancelled out a strong result in French industrial production, but as yields remain elevated, so should the euro. Greek negotiations continue as the ECB weighs an extension of the European liquidity assistance for the troubled nation. Greece managed to repay €200 million to the IMF on Wednesday and stay afloat for now, but the country is running out of money and more doubts have emerged they will be able to meet the next payment of €763 when it comes due on Tuesday.
As North American trading ramps up, the US dollar continues to fight back. US dollarwere very strong coming in at 265k, well below expectations of 280k. Despite Brent oil touching the $70 mark for the first time in months, the US dollar is doing its best to mount a comeback one day before non-farm payrolls. The euro is now 100 pips below last night’s high, sliding lower with other majors on this very strong weekly jobs number. The Canadian dollar is also on the retreat despite very strong March building permits, which showed an increase of 11.6% over the previous month. The USD/CAD rate is showing a wonderful double bottom now, which could add to fundamental weakness as the April Canadian report is released in twenty four hours. Markets are not anticipating much after the very strong March result of 28.6k, despite the fact it seemed a result of part-time roles exclusively.
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