• Worries over dollar data
  • Waiting on exit polls for UK election
  • Oil prices climb higher
  • Battle of yields for Aussie dollar

Volatility is back again this morning. This is partly a result of euro strength but once again not helped by poor data. Yesterday’s ADP readout reported a disappointing 169,000 jobs added instead of the expected 200,000. The manufacturing sector lost 10,000 jobs last month – possibly another threat to the strong USD story? Tomorrow’s payrolls consensus view of 230,000 is high based on a bounce back from March’s disastrous 126,000 addition.

The euro strength is coming from the impact of a rising oil price on global bond markets. The price of crude has recovered strongly in the past few weeks and is currently at their highest level since OPEC’s decision in November. That being to keep supply at current levels, driving the price lower and squeezing the higher cost shale producers. As much as falls in oil prices are deflationary, rises are inflationary and the increase in the cost of a barrel of oil has further turned speculators away from trades that make money in a deflationary landscape.

may-7 graph

Buying bonds, particularly those of Eurozone members, was one of these trades and the reversal within these assets has been large and swift in recent days. The relationship between interest rates, yields and currencies is obvious and strong and the increases in yields on German, French, Italian, Spanish and other Eurozone debts has dragged speculators back into the single currency.

Finally, it is Election Day in the UK. By 5pm Eastern tonight, we should have the first exit poll of results. That same poll pretty accurately foretold the full results in 2010 and caused a broad slide in the pound. By 11:30pm Eastern we should be starting to get a good picture of what the electoral map will look like. Our thoughts on what will happen to the pound in the aftermath of the election can be found here.

EUR-USD moved higher initially this morning but has since fallen back on a good jobless claims figure ahead of tomorrow’s payrolls announcement. Rumours that Greece is close to a deal on its debt are once again doing the rounds. I would expect dollar crosses to remain steady into the jobs report tomorrow morning

GBP-USD is all about that exit poll. With a majority government unlikely, we would need to see either the Conservative or Labour party gain 290-300 seats to see a sterling rally and that possibility seems small.

USD-CAD has recovered from some oversold levels with that jobless claims number also helping the pair back above 1.20. With the Canadian jobs report also due tomorrow I am looking for the labor market of the US to outperform that of Canada’s and USDCAD to rally.

AUD-USD is quiet but a battle of yields is forthcoming. The Reserve Bank of Australia wants a lower Australian dollar but with yields on debt rising to 3% it is an attractive currency to buy. The central bank may have a job on its hands convincing investors otherwise.

Have a great Thursday.