Thursday was always going to be a volatile day despite the expectation that both the Bank of England and the ECB were going to leave interest rates unchanged. Indeed this forecast did come to fruition however the ECB press conference with Mario Draghi did highlight some concerns of the euro zone.
The overall tone was lighter hearted compared to months earlier in the year. This was to be expected as the euro zone has seen a marked improvement across the board albeit the tone was mildly dovish. Draghi remained cautious over the state of the economic recovery in Europe stating that further risks to the downside remain. Draghi reiterated the ECB’s stance on forward guidance affirming the ECB’s plans to keep interest rates on hold for the foreseeable future. A slight revelation was the admission that some ECB members would still consider lowering interest rates further however the overall feeling was that further rate cuts were unwarranted.
The largest impact on the market can most likely be attributed to the ECB’s revised GDP forecasts. A contraction of the euro zone is now only expected at 0.4% for the year not 0.6% however they also revised the growth forecasts for 2014 to 1.0% growth down from 1.1%. This led to the euro losing 0.7% against the pound and 1% against the dollar.
As Thursday afternoon progressed, the US ADP employment report showed that fewer jobs had been created in the US than expected. As a potential precursor to the nonfarm payrolls on Friday, investors will be keen to identify any hints that the Fed may make a move to reduce QE on the 17th September. The majority of analysts are still expecting a reduction from the Fed this month. The initial jobless claims figures from the states showed an improvement as well as a better than expected number of factory orders.
A busy day has began with a decline in UK industrial and manufacturing production which has been attributed to a summer slowdown. The highlight of the day will most likely be the US nonfarm payrolls due at 1.30pm. The pound has been on an upward trend against the dollar since the beginning of July however with data this afternoon forecasted to show an additional 180,000 jobs were added in August we could well see this uptrend come under threat and thus the risk of downside on GBPUSD could intensify.
11.00am – EUR – German Industrial Production (Jul): Expected to improve to 0.6%.
13.30pm – CAD – Net Change in Employment (Aug): Expected to increase to 30,200.
13.30pm – CAD – Unemployment Rate (Aug): Expected to remain at 7.2%..
13.30pm – USD – Nonfarm Payrolls (Aug): An additional 181,000 jobs are expected to be added.
13.30pm – USD – Unemployment Rate (Aug): Expected to remain at 7.4%.