Friday AM: GBP takes a Breather | USD + CAD: Labour Market Data | AUD: Technical Rally

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Markets are chipper ahead of the weekend thanks to U.S. President Donald Trump saying he wants to reach an agreement with China’s President Xi at the Group of 20 meeting on 30 Nov-1 Dec, and has asked key U.S. officials to begin drafting potential terms.

The U.S. Dollar rally has taken a breather over the past 24 hours, allowing a host of currencies to rush higher in relief.

The narrative behind the slide in the Dollar is hard to pin; but we are now focussed on the contents of the U.S. labour market numbers due out in early afternoon London time for further guidance.

"The USD remains in a long-term uptrend, but the day to day gyrations are doing just enough to sucker in trend followers to buy at the highs and sell at the lows, missing the broad trend entirely. The price action in the last 24 hours should be seen in much the same way – a short term retracement that offers better levels to reload," says Sue Trinh, a foreign exchange strategist with RBC Capital Markets.

The Australian and New Zealand Dollars remain outperforms on the market with analysts telling us that a great deal of technical repositioning is at play here: traders have been betting against the two antipodean currencies for so long that the trade has become overcrowded and the market is undergoing rebalancing.

The other outperformer in global FX is of course the Pound which has endured a relief rally that has seen October's losses against the Euro and U.S. Dollar more or less recovered in the space of two days of trade.

Brexit headlines remain key here; we have had a good dose of rumours and denials and we maintain that any real decisive move in the currency out of recent ranges will only come on officially communicated outcomes.

GBP

Construction PMI dominates the calendar for Pound Sterling today when it is released at 09:30 G.M.T.

Markets are looking for a reading of 52.0.

Judging by the disappointing outcome of the previous day's manufacturing PMI we would expect markets to be relatively nervous of a downside miss on today's numbers.

That said, the construction sector represents a relatively small segment of the U.K. economy and it therefore has the least market impact of the trio of PMIs. Monday's services PMI is the one to watch as this sector accounts for more than 80% of the economy.

That said, we doubt markets are placing too much emphasis on economic releases at this juncture knowing that the picture for the economy will look very different in early 2019 once we know whether or not a deal between the E.U. and U.K. has been struck over Brexit.

This will heavily influence the pace of economic activity in 2019.

At the Bank of England's November meeting, Governor Carney outlined that the Bank remains ready to act if a Brexit deal isn’t reached, stating “since the nature of EU withdrawal is not known at present, and its impact on the balance of demand, supply and the exchange rate cannot be determined in advance, the monetary policy response will not be automatic and could be in either direction”.

"He also suggested that a no-deal Brexit could possibly drive higher inflation, by triggering a supply-side shock that warrants higher interest rates. The GBP rallied and gilts slid," says RBC Capital's Trinh.

USD

Labour market data is in focus and markets will be looking for blowout readings to reignite the U.S. Dollar rally which has faded of late.

Markets are currently forecasting a non-farm payroll reading of 193K for October; up on the 134K reading of September.

Keep an eye on earnings numbers: average hourly earnings are forecast to have risen 0.2% month-on-month in October taking the annualised rate of pay growth to 3.1%.

The Federal Reserve will likely be eyeing wage dynamics to get a feel for future inflationary trends, and we are therefore at the stage of the economic cycle where wages matter more than employment numbers.

We believe with markets being so used to strong U.S. data readings, and stock markets being fragile, the response to negative data surprises are likely to have an outsized impact on the market.

CAD

The Canadian Dollar has not enjoyed the same sizeable rally of its commodity currency brethren (AUD and NZD) this week and will be looking for a solid set of Canadian employment numbers to play catchup.

At 12:30 G.M.T. the employment change is released and markets are exception 12.7K jobs to have been added in October.

The unemployment rate is forecast at 5.9%.

Out at 13:30 G.M.T. is the trade balance for September which is forecast to read at C$0.15BN.

A beat on the above numbers could well help CAD end the week on a strong footing.

AUD

The short squeeze higher in the Australian Dollar continues with technical considerations apparently holding more sway than the data.

And this is good news for those needing a stronger AUD as the data out overnight hasn't exactly been helpful.

Retail sales for September read at 0.2%, missing the consensus forecast for a reading of 0.3%.

It is worth noting that the retail sales series is volatile as is typical of most retail sales data series and markets are likely to have placed little weight on this number.

"AUD rallied in the last 24hours because the market has been running extremely short for the last six months -  heading into the start of this week, AUD was one of the worst performing G10 currencies for the past six months – and because a cluster of trend-following momentum stops were taken out of their shorts through 0.7150/60. Not exactly strong fundamental reasons to buy," says RBC Capital's Trinh.

Developments in China do of course remain key for the Aussie which relies on China as its largest export market.

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