The euro is showing little movement in the Wednesday session. Currently, EUR/USD is trading at 1.1700, down 0.09% on the day. Earlier in the day, the euro dipped to 1.1685, its lowest level since August 17. On the release front, German Factory Orders surged 3.6%, crushing the estimate of 0.7%. In the North American session, we’ll get a look at key US employment numbers, so traders should be prepared for some movement from the euro. Nonfarm Payrolls are expected to slip to 85 thousand, while Average Hourly Earnings is expected to improve to 0.3%.
The constitutional crisis in Spain continues to deepen, as the Spanish and Catalan governments show no signs of backing down. The Catalan parliament has scheduled a meeting for Monday, saying it will consider declaring independence. However, Madrid has obtained a court order suspending the Monday meeting, which would mean that any Catalan lawmakers that defy the court and hold a parliamentary session could be arrested. Which side will blink first? The national government has yet to invoke article 155 of the Spanish constitution, which would allow the government to disband the Catalanian parliament. This “nuclear response” could trigger a sharp reaction from Catalonia, which is still seething from the harsh crackdown by police which injured 900 civilians on Referendum Day.
Federal Reserve policymakers continue to come out in favor of another rate hike. On Thursday, Kansas City Federal Reserve Bank President Esther George weighed in, saying that rates would have to move higher in order for the labor market to remain close to full employment and raise inflation to the Fed’s target of 2 percent. George added that it was “appropriate to move cautiously”, but she has been a staunch proponent of further hikes. The markets have been taking note of the Fed’s message, as the odds of a December hike have climbed to 81%. Just a few weeks ago, Federal futures had priced in a December hike at below 50 percent. The Achilles heel in an otherwise strong economy is inflation, which remains well below the Fed’s target of 2 percent. If sentiment towards a December hike remains high, the US dollar could gain ground. In addition to a December hike, the markets are keeping a close eye on a possible changing of the guard at the Federal Reserve. Janet Yellen’s term as Fed Chair expires in February 2018, and President Trump may decide not to ask her to stay on. The current front-runner for the position is Kevin Warsh a former FOMC member, who is considered hawkish by the markets. Other candidates for the Fed Chair include Federal Governor Jerome Powell and Trump economic adviser Gary Cohn.
