Big Turn, Not Just NFP

A new month flipped a switch in the foreign exchange market with the dollar and yen pummeled. The trio of AUD, NZD and GBP each soared around 2% to wipe out the entire month of October losses. Metals continue to dominate energy with silver at the lead, rescuing the 14.20 right-shoulder support.  The volatility will continue with non-farm payrolls Friday but there's another release we'll be watching just as closely. The DAX short hit the stop, while the EURUSD long deepens in the money. A CHF trade was issued yesterday.

Commanding Technical Levels

The 0.9% selloff in USDX was the 5th largest daily drop in percentage terms over  the past 18 months, emerging after a strong end-of-month performance. November suggests that flows were playing a big part in the late-October rally, but technicals also played a major part as USD/CNY approached and failed (again) the 7.0 level, while EURUSD and GBPUSD respected the August lows. Ashraf bought the euro on Wednesday ahead of the August low of 1.1320 and that level held in a big way as EUR/USD reversed and rose more than 100 pips. It proved that sometimes the simplest techs are the best.

Sterling moves were even more dramatic as they were fueled by a report of a Brexit deal on financial services and more signs that an overall Brexit deal is close. The BOE forecasts also showed a slightly higher path for rates. In response, GBP/USD soared to 1.3020 after trading as low as 1.2700 on Wednesday.

The Australian and New Zealand dollars also got a big boost from an Aussie trade surplus that was nearly double expectations. AUD/USD climbed to 0.7205 from 0.7075 in a slow, steady climb.  It's just one report but it highlights that the trade war may play out in surprising ways.

We listen to the talking heads and expert economists daily but no one has lived through this kind of trade war so there's little modern historical experience. Instead everyone is relying on models and assumptions about what 'should' happen. We're keeping an open mind about what will happen and will be guided by data. Thursday's Aussie figures may suggest an argument that China has reoriented its imports away from the US and towards Australia.

Watch the Trade Figues

That trade theme is why we'll be watching Friday's US and Canadian trade balance reports as closely as the earnings in non-farm payrolls. The ISM manufacturing report was littered with anecdotal reports about tariff troubles impeding business. Some suggested near-term problems while others are working through inventories that are nearing depletion. Don't rule out a miss on the $53.6 billion consensus estimate for the US deficit.

At the same time, wage data is undoubtedly critical to the market and the Fed. The consensus for average hourly earnings is +3.1%, a rise from 2.8%. Hurricane skews could impact and anything above 3.2% would surely be a market mover and possibly a lasting one.