Upside US earnings surprise boost USD

After more than a year of the official US Average Hourly Earnings series failing to achieve any form of liftoff, we saw a sudden surge in August – assuming revisions don’t push the reading back lower – to a strong +0.4% month-on-month and cycle high +2.9% year-on-year. This surprise was sufficiently large to jolt the US rate outlook late Friday and sets up considerably more anticipation for coming releases like this Thursday’s US August CPI release, as the market is dragged back into pricing in higher odds of a second rate hike before 2019 rolls around. The US dollar was bid on the back of the earnings data, though the JPY managed to keep pace with the new USD surge as Japan released a much stronger than expected GDP data point and perhaps due to weak risk appetite.

In Asia over the weekend, China posted its largest ever trade surplus to the US even as China’s overall trade balance came in a bit lower than expected on far stronger import growth. There were no notable new trade war headlines over the weekend even after Trump on Friday boasted of possible intent to impose tariffs on a further $267 billion in Chinese imports. Markets will remain vulnerable to the next headline or tweet linked to the ongoing trade row.

In Sweden, the Sweden Democrats saw a large boost in their support in the national election, but the percentage of votes, at 17.9%, was toward the lower end of the range of polls. Despite the total refusal by either of the left- or right- coalitions to form a government with the SD, a minority government can be formed as long as SD don’t vote against it (should this mean a more likely centre-right coalition? – either way the two potential coalitions are of equal strength and SD is “the decider” here).

I was not aware of the actual voting process in Sweden until this morning. Apparently, when voters go to polling places, they actually physically pick up ballots for the party they intend to vote for in full public view before going into the booth, meaning that it isn’t a fully secret ballot (supposedly, a voter could pick up the ballots for two or more parties, but it seems obvious that, given the controversial nature of the SD, the turnout might have been rather different if the process were totally secret).

Chart: EURUSD

The US dollar was bid on the surge in US yields on the back of the upside wage inflation surprise on Friday, and the euro has underperformed, falling not only against the surging greenback, but also versus the buoyant yen and Swiss franc. With the local lows and 21-day SMA falling here, the next levels lower are the key, round 1.1500 level, the 61.8% Fibonacci retracement down at 1.1466 and then the final range low towards 1.1300. For bulls, the implications of the recent large scale rejection of the move below 1.1500 is running out of steam and the pair needs to see a fresh surge back to 1.1700+ for a sense that the bulls have a case for the big 1.1750-1.1800 pivot zone.