Last night’s data dump from the US was both revealing yet surprisingly uneventful – markets remain pacified by a combination of strong US growth and the subsequent announcement that the FOMC decided to remove a further 10 Billion per month from its QE program. Both announcements could be considered positive for the USD, however given the market positioning ahead of the releases the reaction was quite muted. The USD has been strengthening in recent days and reaction to the news was focused in USD/JPY – which rallied 85 pips in the subsequent hours.
US Advance GDP was announced as 4.0% overnight, well above expectations of 3.1% and far from the previous quarter’s -2.9% contraction. With most of the movement confined to USD/JPY and other Yen based pairs, the Euro fell only a quarter of a cent and the AUD only half a cent on the news. Moves in both the Euro and AUD were almost entirely retraced after the FOMC statement, in which it was revealed that the Federal Reserve would remove a further 10 Billion from its monthly QE purchases. The FOMC remains on track to wind up their extraordinary stimulus program at the end of October, with the focus set to shift towards interest rates. The outstanding growth figure puts pressure on Friday’s Non-Farm Payrolls to deliver a big number, and positioning ahead of the release would suggest the market is also expecting a decent figure.
Ahead of Friday’s closely watched Non-Farm Payrolls release, will be inflation data out of the Euro Area today. Economists expect that inflation in the Euro Area will remain steady at 0.5% indicating a potential bottom for inflation and inflation expectations. PMI figures are also set to trickle out over the course of Friday, with Manufacturing PMI’s for China, the UK and the US to be released. Non-Farm will be the focus of the day, however, and all eyes will be watching for a good employment figure to confirm the Advance GDP reading.