Buying GBP against the NZD or EUR

We will be monitoring UK Services PMI for a trade on GBP. The bias is to the upside given the fundamental bullishness of the currency and Monday’s significant beat on Manufacturing PMI. Buying GBP against the NZD or EUR will provide a decent trade, however be mindful of Thursday’s risk event regarding GBP monetary policy. A negative deviation will likely see Cable weaken.

Current Market Sentiment:

During yesterday’s NY session, GDT fell for the second consecutive fortnight, falling 7.4%. This follows a fall of 3.1% at the prior auction. NZX milk futures had already hinted that the GDT may come in lower, as they were trading at a discount. The Kiwi broke the 67 handle and fell nearly 50 pips before finding support at 0.6650 – down nearly 130 pips on the day. The currency subsequently retraced to pre-announced levels before the employment figures came in much lower than expected across all metrics, sending the Kiwi back down, falling 75 pips in subsequent hours. Employment change came in a -0.4% versus the expected +0.4%, unemployment ticked up to 6% as expected, and labour costs missed at 0.4% versus 0.5% expected for the quarter. These two key pieces of data (dairy and jobs), substantially increase the odds of the RBNZ cutting rates in December. We expect the NZD to remain pressured heading into that event. Kiwi is still over 400 pips above its recent lows against the USD; a solide NFP print will certainly open up the space for a fall.

In late NY trade we heard more dovish comments from Draghi, that reiterated the recent ECB press conference in that QE will be re-examined in December and the central bank will use all tool available to achieve its inflation mandate. He also said that risks to inflation and the economic outlook have increased; EURUSD fell 20 pips.

During Asia, Australian Retail Sales came in as expected at 0.4% for October, and Trade Balance figures showed a smaller than expected deficit. Soon after, Chinese Caixin Services PMI beat estimates at 52 versus 51 expected. Collectively, these in-line or better data points have kept the Aussie supported, having taken out yesterday’s highs, up 45 on the day. AUDNZD is up 320 pips from yesterday’s RBA-induced spike lower.

Ahead we have Services PMIs from various European nations with the UK being the one to watch. Later we will see ADP Employment from the US. Watch my weekly risk events overview here to learn more about these releases.

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