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GBP retreats on weak data, NFP in focus
Cable sold off amid the UK’s industrial production unexpectedly contracted by 0.1% on month to May. The weak data further dampened the mood among the British manufacturers, already distressed by the deterioration in the June PMI data earlier in the week.

The drawback in the pound suggests that an eventual weakness in the US could keep the GBPUSD capped below the critical mid-term resistance of 1.3045, the major 38.2% retracement on post-Brexit sell-off.

The FTSE held ground above the 7300p.

Energy stocks (-0.90%) lead losses in London as the weakening oil prices, despite the solid 6.3 million barrel weekly decline in the US crude inventories, couldn’t prevent the WTI crude (-1.49%) from trading below the $45 level.

Sell-off in Eurozone bonds deepens

The European Central Bank (ECB) meeting accounts spurred another round of sovereign bond sales. The German and French 10-year yields rose more than 9 basis points, Italian and Spanish yields rallied more than 10 basis points on news that the ECB's committee discussed about the possibility of Quantitative Easing (QE) unwind.

The European policymakers maintained an emphasis on inflation ‘as the economic expansion had yet to translate into stronger inflation dynamics’. The statement remained under the shadow of the ECB-hawks’ excitement.

The EURUSD recovered to 1.1427. The first line of resistance is eyed at 1.1445 (June 29 – 30 double top) before the 1.15 hurdle. Call options could support the positive trend above the 1.14 level at today’s expiry.

The US employment data could give a decisive turn to the pair before the weekly closing bell.

European stocks are suffering from the hawkish shift in ECB expectations and a stronger euro. The DAX (-0.20%) and the CAC (-0.34%) should remain momentarily unappealing as the euro is aiming to take over the 1.15 barrier against the greenback.

Japanese bonds are left out of the global yield rally, EURJPY hit 130.

The European bond sell-off spilled over the global sovereign markets. Australian and New Zealander 10-year yields rose more than 8 basis points. Brazilian (+10.5bp), Argentinian (+9bp) and Mexican (+6.7bp) papers offered better yields as well.

The Japanese bonds were the exception as opposed to the rule. Japanese yields slipped as the Bank of Japan (BoJ) offered to buy an unlimited amount of bonds with five to ten year maturity. Carry traders moved capital into the Kiwi (0.54% vs. JPY) and Aussie (0.41% vs. JPY).

The EURJPY traded at 130.00 for the first time since February 2016. As such, the euro recovered half of 2014-2016 losses against the yen and the positive momentum strengthens for a further rise as the BoJ is decidedly swimming against the tide. The support to the long-term positive trend is placed at 129.68, the Fibonacci 50% level on 2014-2016 decline, with the next target set at 134.42 (major 61.8% retrace).

The USDJPY stretched to 113.84 in the extension of the June – July positive trend aiming to re-test the 115.00 hurdle. Intermediate resistance is eyed at 114.36 (May double top). The risk of softer US yields is the major barrier. Nikkei (-0.46%) and Topix (-0.57%) gave little attention to the weakening yen and closed the session on a negative note.

US labour data in focus

Released on Thursday, the ADP employment report revealed that the US economy added 158’000 new private jobs in June, significantly lower from 230’000 printed a month earlier and well below 184’000 expected by analysts.

The consensus for the June NFP is 178’000 versus 138’000 printed a month earlier. The average hourly earnings may have improved by 0.3% month-on-month, from 0.2%.

Although the correlation between the ADP and non-farm payroll (NFP) data is not stable, the 12-month correlation stood between 65% - 80% since the beginning of 2017. In this context, if the June non-farm payrolls miss the estimates, the US yields could fell off the stage and the selling pressure in the US dollar could intensify.