EUR/USD is holding in a tight orbit around 1.1100. There is nothing on the European calendars (PMIs all final) to much alter sentiment before the jobs report.
Sterling
Sterling rallied by almost one per cent and 1.2 cents immediately after 10am Thursday after a High Court ruling on Article 50 said MP’s in Parliament must have the opportunity to debate when and how to trigger Article 50.
This means MP’s could potentially reign in UK PM Theresa May’s ‘hard Brexit’ rhetoric. Later that day, pound almost went on to break the key $1.25 threshold against the dollar, boosted further by the Bank of England’s u-turn on the policy. As a result of this combination of sterling-friendly political and interest rate developments, the GBP/USD rate has now risen by three per cent over the past seven trading days while GBP/EUR is up by 1.8Per cent.
The question for traders now is will Thursday’s ruling on Article 50 create more political certainty, or uncertainty about the outlook for British politics? The conclusion here (US election result permitting) will help determine whether sterling can break the $1.25 barrier and re-open the $1.25-$1.28 price range.
US dollar
This week has seen a further narrowing in the US election opinion polls as support for Hillary Clinton wanes ahead of next Tuesday’s big vote and event risk. As markets begin to realise, albeit late, that there is a material risk of a Donald Trump presidency next week, the VIX Index (Wall Street’s so-called measure of fear) has continued rising back to Brexit highs.
Following news of another FBI investigation, Clinton is now fighting to hold on to key states where she had been comfortably leading the polls. With populist threats increasing in 2016 and the experience of the shock Brexit result still fresh in the minds of market participants, the USD is under pressure and demand for havens Gold and the Swiss franc has jumped.
A reasonable assumption would be that if Trump wins, the dollar should weaken as it would create huge uncertainty about the new US economic and political outlook. If that is the case the USD could in fact gain sharply (eventually) from safe haven demand and a global unwinding of risk.