USD: crude impact

The OPEC decision to cut output aggressively on Wednesday has helped fuel the
oil price recovery, fanned global stagflation fears and dealt a crude blow to global
risk sentiment. The production cut can negate the price impact of the recent US
strategic oil reserve release and the Russian oil price cap that were meant to soften
the negative oil-supply effect of the EU ban on insurance services for seaborne
Russian oil exports due on 5 December. Stagflation fears could keep the markets
in risk-averse mode and thus allow the high-yielding, safe-haven USD to reign
supreme. Next to market risk sentiment, today’s focus will be on the Non-farm
payrolls for September. Ahead of the release, the ISM manufacturing labor market
component and the jobless claims data pointed at some returning labor market
weakness, while both the ADP and the ISMservices sent the opposite signal earlier
this week. Ahead of the NFP, our US economist and market consensus are
expecting the headline print to signal that hiring slowed down noticeably in
September while the unemployment rate stayed close to the cycle lows and wage
growth remained strong. With that in mind, unless the data is very weak, the ‘USD
smile’ should remain the dominant FX market template with the high-yielding, safe haven King USD still reigning supreme.

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