Last Friday’s employment report from the US was a lot weaker than market consensus with only 126,000 jobs created. Up till that point, it looked as though any rally in EUR/USD was a selling opportunity for the inevitable push towards parity – a level not seen for many years. The weak employment report caused EUR/USD to briefly spike above 1.10 and some market commentators appear to think that the Fed will now delay a rate hike until the back-end of the year, which may give a softer tone to the US Dollar.
Is the strong dollar causing a drag on US economic performance ? That’s difficult to say, but the main trading partners of the US are all still in easing mode and now that a US rate hike seems to have been kicked down the road, there should be good 2-way interest around the 1.10 level.
The debate continues around last look FX pricing and whether the distribution of information is skewed towards the dealers, and away from the customers. Well, yes – it undoubtedly is, and of course that’s the reason the systems are built in that way. I am not saying whether this practice is fair or not, but the contract term “an invitation to treat” is well established in law. It comes from the Latin invitatio ad offerendum and means “inviting an offer. The person (dealer) making that offer does not intend to be bound, as soon as it is accepted. Hence the trade rejections come thick and fast on some systems.
The important part is that users of systems with last look functionality need to know that it is being used, so that the apparent tight spreads and depth of liquidity are not just another mirage in the Foreign Exchange desert.