httpvh://www.youtube.com/watch?v=B1T7u6E0vIE

It was as it was and how it shall forever be. Non-Farms prompted a swift reversal away from risky assets with equity markets and the dollar losing ground into the London and New York closes.

Economists had predicted that the US would lose 65,000 jobs in the month of July, a figure that was blown out of the water by an actual loss of 131,000. It is now almost certain that we will see further quantitative easing in the US when the Fed meet on Wednesday meeting. With the US recovery slipping slowly backwards thoughts turn to the markets expectation of the US dollar; we think that this only strengthens our belief that we will see a weaker dollar moving forward.

On Friday however we saw GBPUSD move as close to the 1.60 level as possible without hitting it. The high on Friday was indeed 1.5999 and we have tested that level in overnight trade as well. Overnight equity markets are mixed with the Nikkei 225 0.75% lower and the SSE Composite (the main Chinese market) 0.42% higher at the time of writing.

This week’s risk to sterling is the Bank of Inflation Report to be published on Wednesday. We are of the belief, as we expressed in last week’s webinar, that this will be a near term bearish pressure on the pound on all of its crosses. Mervyn King begins speaking at 10.30 on Wednesday.

As one trader said to me on Friday ‘Non-Farms is like a cheese fondue; satisfying when you get it but actually takes 3 days to digest’. We expect the market will still be chewing over the details of the US jobs market today and with the lack of data elsewhere the trends of Friday are likely to continue.