Friday Payrolls, USD and USDCNY, EURUSD weakness

Friday’s slight miss on the NFP headline reading and the tick up in the unemployment rate had little impact on the market’s expectations that the Fed would be hiking rates in December. Indeed in a speech yesterday, Fed Vice Chair Fischer welcomed Friday’s jobs report and delivered a very unconvincing defence of why the Fed did not hike rates last month. Of course the elephant in the room is the forthcoming Presidential election, where last night’s unedifying debate appears to have had little impact on polls favouring a Clinton victory – and status quo for financial markets. For this week, and away from any gyrations in oil generated by this week’s World Energy Congress in Istanbul, the US focus will be on FOMC minutes (Wed) and Sep retail sales (Friday). We suspect investors will continue to back the dollar in the short term and DXY to stay supported in the 96.20/30 area. A move back to the 97.19 high seems likely. EUR/USD continues to trade in incredibly tight ranges and one month historical volatility is trading near 6% – the lowest levels since 2014. The market is increasingly focus on the technical indicators of Bollinger Bands (also a gauge of historical volatility), where we suspect momentum accounts will be looking to follow any decisive break of the 1.1150-1.1250 range, not wanting to miss a new trend. Eurozone data is relatively light this week (German ZEW on Tues, Eurozone IP on Wed) but an on-going rejection of last week’s tapering story and firming views of a Fed hike suggest EUR/USD downside looks the more vulnerable short term. Elsewhere we note continuing under-performance by the SEK. It’s not clear what’s driving this: Trump’s threat to global trade or SEK as the EU disintegration hedge? Yet a EUR/SEK move through 9.68/72 could trigger some follow-through buying from momentum funds. The return from a week-long holiday saw the PBOC fix USD/CNY above 6.70 for the first time since 2010. This is a function of the stronger dollar. Keep close watch on the CFETS basket, where any move below 94.00 would be worrying.