Lots of event risk in the days ahead

Fears about yet another market crash in October proved unfounded but there were severe bouts of nervousness during parts of the month.  This was hard to tie in with the strength of earnings and continued good news on the economic front but perhaps markets had already priced in a lot of good news.   This was evident in the fact that economic surprises were becoming increasingly negative.

Nervousness is good for the dollar and has at least given the currency a semblance of support.   However, not all the economic news is coming in below forecast as demonstrated by the stronger than consensus reading for the US ISM index for October whilst even the eurozone PMI moved back into expansion territory following 17 months of contraction.

The tone over the rest of the week will depend on the outcome of several central bank meetings the main ones being the Fed, ECB and BoE as well as the US non-farm payrolls report.  None of the central banks are likely to hike rates but in an FX market that is becoming increasingly reactive to interest rate differentials whichever bank sounds relatively more hawkish will see their respective currency strengthen the most.

Unless the Fed sounds particularly dovish the dollar is likely to consolidate further over the short term and given the still significant size of dollar short positioning there is still some scope for some further relief for the dollar.   However, don’t expect much movement out of current ranges until after the payrolls report and even then markets may be hesitant ahead of this weekend’s G20 meeting.

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One Response to “Lots of event risk in the days ahead”

  1. Robert Bird Says:

    Hi Mitul,

    Indeed, a lot of event risk is on the horizon. I, myself, will be watching the jobs report very closely. In the past several months, the report has created much volatility in the dollar. Short term, it appears the EUR/USD level of 1.47 will hold as support for the sixth consecutive day. The pair has probed lower, but the close has held. In past reports, the dollar has sold off immediately on release, only to strengthen minutes after the release. A break of 1.47 leads for more dollar gains to come.

    Best,
    Robert


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