Investors are slowly but surely preparing themselves for higher rates as equity markets suffered a blow yesterday, the dollar continued to appreciate or at least hovered around its recent highs and the US 2 year Treasury yield reached its highest level since the first half of 2011. With the first dissenter sitting on the FOMC showing his cards on Wednesday and further decent economic data the majors that have seen the most gains against the dollar in recent months, namely sterling and the euro, are up against considerable headwinds now. The euro in particular following the lower than expected inflation data yesterday and for now the 1.3370 level remains near term support but we are perilously close to that and a test of this level can’t be ruled out especially if nonfarm payrolls today comes in higher than the 233k expected.
Overnight the Aussie softened further to add to its own losses against the dollar following weaker than expected producer prices and Chinese manufacturing data. AUDUSD is now back below 0.9300, almost a 2 month low, but we are likely to see the RBA’s rhetoric continue to try and keep a lid on the Aussie.
Ahead of nonfarm payroll, the highlight of today’s session, there’s a raft of manufacturing PMIs from across Europe and the UK. All are expected to either increase or as a minimum rise, except for France that is forecast to dip to 47.6. Then the focus will be on the nonfarm figure, but also importantly average earnings due to come in at 0.2%. Disappointing figures could lead to a bit of profit taking in the dollar, which by a number of measures looks a little over bought in the short- term.