European markets are marginally lower on Friday in a muted session after a national holiday in the US. Germany revealed another dismal report which added to concerns over the state of the euro zone economy. Industrial orders were down by 2.2% on the month after rising slightly in March and April versus -0.1% expected. Meanwhile, European Central Bank Vice President Luis de Guindos said that the bank is keeping all monetary policy options on the table for dealing with an economic slowdown. By the way, Commerzbank now expects the ECB to cut its deposit facility rate by 20 bps in July.
Against this backdrop, the UK’s FTSE 100 declines by 0.44 per cent to 7570, Italy’s FTSE MIB sheds 0.29 per cent to 22,056, France’s CAC 40 loses 0.30 percent to 5,603, while German DAX 30 is 0.34 per cent lower to 12,585. US stock index futures are nursing modest losses as the report on the domestic jobs market came in better than expected.
The dollar was firmer across the board ahead of the key employment report and accelerated the ascent following the release. Nonfarm payrolls in June increased by 224,000 following May's reading of +72,000 (revised from 75,000) versus 160,000 expected. The unemployment rate rose from 3/6% to 3.7%. Average hourly earnings MoM were at 0.2% versus 0.3% expected. Average hourly earnings have increased by 3.1 percent yoy. The average workweek for all employees on private nonfarm payrolls was unchanged at 34.4 hours in June. While the headline figure was spectacular (which is quite logical considering dismal results in May), the components were somehow disappointing.
Against this backdrop, EURUSD turned even lower on the day and briefly slipped to fresh two-week lows around 1.1232 in a knee-jerk reaction to the release. In the short-term, the offered tone around the common currency will likely persist. Meanwhile, GBPUSD dropped below 1.2520 for the first time since June 18 and now threatens the 1.25 handle. However, despite good employment numbers, traders won’t change their expectations on Federal Reserve monetary policy, with a July rate cut is fully priced in already. As such, the upside momentum for the greenback could be limited and short-lived.
Oil prices were marginally higher above $63 before the NFP report. Brent registered a daily high around $63.70 earlier in the day and still lacks the upside impetus to challenge the $64 local resistance. As the greenback rallied, the futures lost intraday gains and settled around $63. The market is still supported by tensions over Iran and the decision by OPEC and its allies to extend a supply cut deal until next year. But prices struggle to stage a rally as concerns over global demand continue to weigh, and the US shale producers further expand their activity. In the short-term, the futures will likely remain in the familiar range, with the risk of a break below $62 persists.
Nathan Lambert, Head of Global FX Analytical Department