• Good jobs report expected
  • Greek bond yields jump
  • UK election concerns intensify
  • Oil at 2015 highs

In arguably the most challenging environments for a forecaster, economists try to guess the direction of the market.  Some look at currency charts for clues.  Others study fundamentals to discern patterns.  I belong to the fundamental camp, and I’m seeing promising signs for the dollar in the second quarter.

Manufacturing and service activity indexes recovered nicely in April, reversing several months of subpar performance.  The weekly initial jobless claims are also running near a 15-year low, hinting that this Friday’s employment report could surprise to the upside.

may-6 graph

In contrast, the UK’s general election on Thursday is projected to result in no one party having a parliamentary majority.  Ensuing political and legislative uncertainties will likely pull the pound lower for many days.

Meanwhile, the euro remains under heightened pressure as the Greek debt crisis intensifies.  Greece is likely to default on their debt payment next week unless it can secure additional loans.  Greek government bond yields rose sharply yesterday suggesting that investors are seriously worried.  Spanish, Italian and Portuguese bond yields also jumped higher on contagion concerns.  The Eurogroup meets today.

EUR-USD climbed higher as US crude prices rose above $60 a barrel for the first time since December.  Oil is viewed as another store of value like gold.  As oil prices rise, the dollar becomes less attractive in relative terms for investors.

GBP-USD rose on the dollar weakness yesterday.  I’m surprised by this move because the market chatter over tomorrow’s general election concerns intensified all day.  I expect a reversal today.

USD-CAD fell as oil prices surged to 2015 highs on the news that Saudis raised its official selling prices.  Higher prices will help in rolling back trade balance deficits.

AUD-USD jumped higher as the Reserve Bank said in the policy statement that it sees signs of “improved trends in household demand over the past six months and stronger growth in employment.”   I think the currency pair will go higher if tomorrow’s April employment report measures up to the bank expectation.

Have a great Wednesday!