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Asian equities are expected to open flat as traders "circle the wagons" and square off interweek speculative trades ahead of the crucial U.S. jobs data due later on Friday. This data is set to provide the most explicit hints yet as to whether the Federal Reserve might pull the rate-cut lever in September.

Across the globe, UK exit polls predict a landslide victory for Keir Starmer's Labour Party, leading to a humbling defeat for the ruling Conservatives under Prime Minister Rishi Sunak. This result has mainly been "baked-in" by the opinion polls and shouldn't create a significant global tremor. Nonetheless, the new government faces a mountain of financial and fiscal challenges.

Across the pond, fresh off the Independence Day celebrations, speculation is growing that VP Kamala Harris will replace Joe Biden as the Democratic candidate. She's polling more favourably than other contenders, making this a hot topic.

However, in the financial markets, all eyes are on Friday's payrolls report. With E-mini S&P 500 Index Futures just a whisker away from 5600, Wall Street is bracing for a softish print. Any sign that the labour market continues to rebalance in the Fed's favour could be very positive for stocks and currency markets.

The markets are trading on the principle that "bad news is good news" this week. Following the weakest ISM services print since the pandemic, at 48.8, and deteriorating job claims, but too low of a headline payroll print (close to 100K) could spell trouble in the crowded stock market room basking in an extended Goldilocks zone.

Turning back to politics and the Forex market, all the fireworks are happening in the U.S. Should we see confirmation of Biden’s withdrawal, the dollar could trade slightly weaker. Markets might conclude that Democrats wouldn’t push for a change in candidate unless it improved their chances ahead of November. Still, until a new round of presidential polls is published (with Trump currently leading Biden 49%-43%), we doubt markets will significantly unwind USD longs driven by bets on a Trump victory.

While US economic and political developments will continue to drive the US dollar bus, a noteworthy tightening occurred in France's OAT-Bund 10-year spread. The spread closed at 61 basis points yesterday, down from a late-June peak of 82. The primary catalyst was the news that numerous center and left-wing candidates had withdrawn from three-way runoffs to curb the rise of Marine Le Pen's right-wing National Rally party. This raises the chances of a hung parliament, which markets perceive as more desirable since it limits the likelihood of aggressive spending maneuvers.

Earlier in the week, we suggested the EUR/USD would take out 1.08 on a combination of weaker U.S. data and easing political angst in France. However, I wouldn't be going long over my ski’s EUR just yet, as Trump is still in the presidential driver’s seat, and the odds of the Bund vs. OAT spreads widening again is real.

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