Passions on NFP: dangerous and useless. No victims.

Hurricanes have distorted NFP, but the market has ignored these data; «Game of Thrones» around the head of the Federal Reserve become more active.

May and Brexit under mutual threat; euro has endured one more week of political failures.

The NFP components contradict each other and force to doubt correctness of the calculation. Optimism on unexpected decline in unemployment was quickly enough compensated by reduction of number of jobs − for the first time for the last seven years though this indicator has collected all negative from bad weather. Apparently, falling of unemployment has begun to put pressure upon growth of salaries, the indicator has grown to the maximum levels since 2009 − one more powerful argument in favor of increase in a rate in December. Besides, preparation of North Korea for the next missile launch, which can reach the western coast of the USA, presses on greenback. The dollar have to return profit before the report on retails.

Even considering that Trump`s tax reform will just increase budget deficit and will create new debts, the lower house of the U. S. Congress has taken the first step to its ratification − has adopted the budget for 2018, vote of the Senate on the budget is planned for the next week. Growth of dollar on this fact was insignificant.

According to the insider, the final list of candidates for the post of the head of FRS, received by Trump, includes Worsh, Powell, Cohn and Yellen. The lady has the minimum chances, the candidate of the FRS`s representative Kashkari, according to CNBC, wasn't even considered. Trump chooses between two opposite candidates, is stated that the decision will be made within 2-3 weeks, but probably it happens earlier.

The next head of the Federal Reserve has to become the official who will support Trump in his «soft» monetary policy and aspiration to keep low interest rates to stimulate the market of cheap loans. It is clear: the president (truer – his business) is the largest developer of the commercial real estate and show business, and tries to create favorable conditions for development of the projects. Jerome Powell's nomination is supported by the Minister of Finance Mnuchin especially as Powell's position on regulation of the financial sphere coincides with Trump's opinion. Until the issue with the successor Yellen is resolved, large volumes of speculators in the market aren't observed.

Despite active reaction to NFP, strengthening of political tension in Spain continues to hold euro from serious growth. Only last Friday certain ministers (!) of the government have apologized for excessive actions of police. The Spanish courts try to block declaration of independence, the parliament of Catalonia intends to discuss results of a referendum on Tuesday, the speech of the head of the government is expected at 18:00 (CET). Most likely, negotiations will lead to the agreement and expansion of the autonomy of Catalonia that will become a positive factor for growth of euro. Last week economic reports of the Eurozone appeared mixed, today we wait for the positive report on industrial production in Germany and the indicator of confidence of investors from Sentix; the probability of the movement to 1.16 remains high.

As a result, the pound has reached the next min, having fallen under 1.31 mark. The negative of PMI data in a industrial sector became the beginning of falling, the fear of Davies and Fox in regards the trade agreement within Brexit have worsened a situation, the sceptical forecast from S&P has continued pressure, and the failure performance of May has put the end. «Bulls» on pound paid too much attention to «hawk» rhetoric of BOE, bought up currency on strong statistics, and political risks postponed. Despite messages about «a revolt of 30» in the British parliament, the Prime Minister has said that she doesn't intend to retire, and her cabinet completely supports her. Theresa has time before a repeated performance to prove that she not for nothing is party leader. Especially as representatives of BOE will make everything to reduce risks of further acceleration of inflation. So, the possible levels of $1.32-1.33 aren't cancelled yet.

The new storm Nate in the Gulf of Mexico loses force, hasn't brought serious destructions to the enterprises of oil production, but threatens with floods in three American states. Oil has updated minima on political speculation, and also has fulfilled all hidden negative of NFP.

We will note one more news which the market hasn't «realized» yet. The Ministry of Finance of the USA has published a set of recommendations for change of regulation of the financial markets which contains the direct offer to cancel a part of requirements of Dodd-Franck law. It should add a positive to dollar and promote inflow of the capital to the USA. Speculators will be pleased especially by decrease in marginal requirements to trade in derivatives. Weakening of administrative regulation of the market is intended to compensate alleged toughening of financial conditions because of increase in a rate.

Current week:

  • The FOMC protocols planned to release in the Wednesday shall be very «hawk», but their data already «became outdated» against the background of shock NFP. The rhetoric of FRS concerning inflation can exert the greatest impact on dollar. Anyway, the market will wait for the report on growth of inflation for September (October 13) to decide on the direction.
  • Inflation of consumer prices and retails, a Yellen`s performance at a banking seminar on October 15 which can impact on opening of the markets only next Monday, will become the principal data on the USA.
  • There are no important data on Britain, the trade balance with the publication on Tuesday is of interest;
  • China has returned on the market with negative PMI services, it is necessary to keep track of trade balance (on Friday).
  • On the Eurozone it is necessary to trace final assessment of growth of inflation in Germany. It is worth waiting for active reaction to rhetoric of members of the ECB within a week. Draghi's performance at a conference of the IMF on Thursday will be obligatory to contain the speculative insider for correction of positions on euro in the run-up to the meeting on October 26.

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Author: Navsher Bartash,
ForexChief Currency strategist