Softer US Dollar Confronts Employment Report

Special report: US Jobs Preview – Eye on Hourly Earnings

Today’s report: Softer US Dollar Confronts Employment Report

The market hasn't really cared much about a solid round of China PMIs, with sentiment turning lower ahead of today's all important monthly employment report out of the US. Other data on the day includes Eurozone unemployment, UK manufacturing PMIs, US ISM manufacturing and Michigan confidence.

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Wake-up call

Chart talk: Major markets technical overview video

Chart talk: Technical & fundamental highlights

EURUSD – technical overview

The market remains well supported on dips, breaking to fresh 2016 highs. But overall, the broader downtrend remains intact and with the price now trading up towards 1.1500, there is risk for another topside failure and bearish reversal. Look for additional upside to remain well capped below 1.1500 on a daily close basis, while ultimately, only back above 1.1709 would force a shift in the structure. A break below 1.1311 will help to strengthen this outlook and alleviate immediate topside pressure.

Screen Shot 2016-04-01 at 6.08.13 AM

  • R2 1.1495 – 15Oct high – Very Strong
  • R1 1.1412 – 31Mar/2016 high – Medium
  • S1 1.1311 – 31Mar low – Medium
  • S2 1.1284 –30Mar low – Strong

EURUSD – fundamental overview

The Euro was bid up to a fresh 2016 high on Thursday, continuing to find demand on the back of this week’s dovish Yellen speech. A decent round of Eurozone inflation and softer US initial jobless claims also factored into the price action, though the market did retreat off the highs on better than expected Chicago PMIs and month end, quarter end position squaring. Cautious comments from Fed Dudley and hawkish rhetoric from Fed Evans have mostly been shrugged off, with the focus now shifting to today’s highly anticipated monthly employment report out of the US. But ahead of the US employment report we get Eurozone manufacturing PMIs and Eurozone unemployment. Also out in the US post NFPs are US ISM manufacturing and Michigan confidence.

GBPUSD – technical overview

The recovery rally out from a recent 7 year low has stalled out ahead of key resistance at 1.4668, potentially setting the stage for the next major lower top and bearish resumption. A daily close below 1.4053 will strengthen this outlook and expose a retest of 1.3836, which guards against the multi-year base at 1.3500 further down. Back above 1.4668 would be required to take the immediate pressure off the downside.

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  • R2 1.4459 – 30Mar high – Strong
  • R1 1.4372 – 1Apr high – Medium
  • S1 1.4283 – 28Mar high  – Medium
  • S2 1.4195 – 29Mar low – Strong

GBPUSD – fundamental overview

The Pound recovery has stalled out over the past few sessions with Brexit overhang and some softer local data weighing on the UK currency. While the UK final GDP read did manage to exceed expectation, this was more than offset by the dreadful current account showing, with the deficit ballooning to record levels. Looking ahead, we get some UK manufacturing PMIs, though most of the attention will be on the later release of the monthly employment report out of the US. US ISM manufacturing and Michigan confidence are also scheduled for release on Friday.

USDJPY – technical overview

The recent break below the previous multi-month low from February was a significant development, as it potentially warns of a fresh downside extension ahead following a period of multi-day consolidation. At this point, a daily close below 111.00 would be required to strengthen this prospect, though any rallies in the interim should be very well capped ahead of 115.00. Ultimately, only back above 115.00 would force a shift in the structure and take the pressure off the downside.

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  • R2 113.80 – 29Mar high – Strong
  • R1 112.80 – 30Mar high – Medium
  • S1 112.02 – 30Mar low – Medium
  • S2 111.38 – 22Mar low – Strong

USDJPY – fundamental overview

A better than expected round of China PMIs has done very little to prop sentiment in early Friday trade, with Asia equities under pressure. This has weighed on the major pair, with setbacks also fueled by the disappointing Japanese Tankan reading. Looking ahead, the key focus for the day will be on the upcoming monthly employment report out of the US. Also out in the US are ISM manufacturing and Michigan confidence. 

EURCHF – technical overview

The latest round of setbacks from fresh multi-month highs at 1.1200 have been well supported, with the broader outlook still highly constructive. Look for any additional weakness in the sessions ahead to continue to be supported above 1.0800, in favour of a higher low and the next major upside extension through 1.1200, towards 1.1500 further up. Only a close below 1.0715 would delay the outlook.

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  • R2 1.1024 – 17Feb high – Strong
  • R1 1.1000 – Psychological – Medium
  • S1 1.0875 – 23Mar low – Medium
  • S2 1.0810 – 29Feb/2016 low – Strong

EURCHF – fundamental overview

Economic data out of Switzerland has been better of late, as reflected through the trade balance and KoF leading indicator, and there could be signs of an alleviation of intense deflationary pressures. And yet, with the Franc still deemed to be well overvalued, the SNB remains committed to its current policy strategy of intervention and negative rates. The SNB’s job has been a lot easier of late, with the EURCHF rate stable despite more ECB stimulus and accommodations elsewhere, and this should give the central bank the flexibility it needs to keep from making any additional easing moves. But the global backdrop is still shaky and any signs of renewed downside pressure on equities, could invite unwanted CHF appreciation, something the SNB needs to continue to closely monitor.

AUDUSD – technical overview

An impressive run for this pair over the past several days, with gains extending to fresh 2016 highs. However, the run is starting to look a little stretched and there is risk for a pullback and potential bearish resumption. Still, a break back below 0.7477 would be required to strengthen this outlook and take the immediate pressure off the topside.

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  • R2 0.7800 – Figure – Strong
  • R1 0.7723 – 31Mar/2016 high – Medium
  • S1 0.7615 – 30Mar low – Medium
  • S2 0.7558 – 28Mar high – Strong

AUDUSD – fundamental overview

The Australian Dollar has performed rather well this week, trading up to a fresh 2016 high on Thursday ahead of this latest minor pullback. Most of the gains in the currency have come on the back of dovish Yellen speak and a repricing of Fed expectations. However, a stronger Australian Dollar is not something the RBA will be welcoming of and medium-term players have begun to reassert short positions into this latest bout of strength. Even the impressive round of Friday China PMIs has done little to inspire gains, with Aussie pulling back on a deterioration in sentiment. Looking ahead, the monthly employment report out of the US will be watched closely, while US ISM manufacturing and Michigan confidence are also due.

USDCAD – technical overview

Signs of a potential bottom after the market stalled ahead of the critical October base at 1.2832. The market will need to establish back above 1.3296 to strengthen this outlook and accelerate gains, setting up a possible double bottom and bullish resumption. But while the market holds below 1.3296, a deeper drop to test the October 2015 base at 1.2832 should not be ruled out.

Screen Shot 2016-04-01 at 6.11.22 AM

  • R2 1.3167 – 28Mar low – Strong
  • R1 1.3081 – 30Mar high – Medium
  • S1 1.2969 – 1Apr low – Medium
  • S2 1.2858 – 31Mar/2016 low– Strong

USDCAD – fundamental overview

An impressive round of Canada GDP data helped to extend the Canadian Dollar’s rally to another fresh 2016 high on Thursday, before the market reversed quite sharply into the close on broader flows. It seems the combination of renewed downside pressure in the price of OIL, solid Chicago PMIs and a deterioration in risk sentiment were the primary drivers offsetting Canadian Dollar strength. The Loonie has also enjoyed a very nice ride since its near 13 low against the Buck back in January, and medium-term players are starting to reassert long US Dollar exposure into this dip. Looking ahead, Canada manufacturing PMIs are due along with US ISM manufacturing and Michigan confidence, though most of the attention will unquestionably be placed on the release of the US monthly employment report.

NZDUSD – technical overview

Despite gains over the past several days, the market still remains confined to a broader downtrend with rallies continuing to be very well capped ahead of the key psychological barrier at 0.7000. However, a break back below 0.6841 will be required to strengthen the outlook and expose fresh declines towards next key support at 0.6668 further down. Ultimately, only a weekly close above 0.7000 compromises the bearish outlook.

Screen Shot 2016-04-01 at 6.12.19 AM

  • R2 0.6967 – 31Mar/2016 high – Very Strong
  • R1 0.6937 – 1Apr high – Medium
  • S1 0.6841 – 30Mar low – Medium
  • S2 0.6716 – 29Mar low – Strong

NZDUSD – fundamental overview

It seems the New Zealand Dollar is still being used as a proxy for risk, with the currency outperforming over the past week on the back of some dovish Yellen speak and a welcoming market reaction. However, there are plenty of signs of a cooling in the New Zealand economy, and this in conjunction with an undesired higher exchange rate and subdued inflation, make any rallies into medium-term resistance around 0.7000 very attractive sell opportunities for medium-term players. Solid China PMIs have done little to prop Kiwi on Friday and there are signs of cooling off after Thursday’s fresh 2016 high. Looking ahead, the monthly employment report out of the US is sure to be the primary volatility driver, though US ISM manufacturing and Michigan confidence should not be overlooked.

US SPX 500 – technical overview

This latest multi-day rally is classified as corrective, with any additional upside expected to be well capped below 2100 on a weekly close basis in favour of the next major downside extension below 1800 and towards a measured move at 1500 further down. Ultimately, only a weekly close back above 2100 will delay the bearish outlook.

Screen Shot 2016-04-01 at 6.12.52 AM

  • R2 2083.00 – 29Dec high – Strong
  • R1 2074.00 – 30Mar/2016 high – Medium
  • S1 2021.00 –24Mar low – Strong
  • S2 2004.00 – 15Mar low – Medium

US SPX 500 – fundamental overview

Investors continue to find comfort in dovish Fed speak, with Tuesday’s Yellen comments fueling this latest push to fresh 2016 highs. But how long investors find comfort in gestures of additional accommodation is an entirely different question and one that could ultimately become more important sooner than later. If the market loses confidence in the ability for exhausted monetary policy gestures to stimulate the economy, or if a fresh set of headwinds emerge, there won't be much the Fed can do – a distressing prospect even the Fed Chair recognizes. Looking ahead, most of the Friday volatility will come from the US employment report, though equities are already under pressure early on despite a solid round of China PMIs. With the Fed Chair somewhat dismissing the impressive jobs numbers, it is becoming increasingly apparent that the key component to watch is hourly earnings. Any signs of an uptick on thhis front could get the Fed leaning more hawkish, which would weigh on stocks.

GOLD (SPOT) – technical overview

The market continues to show signs of a major structural shift, with the impressive recovery from the multi-year low in late 2015 at 1046, extending above the critical October 2015 peak at 1192. From here, any setbacks should be well supported ahead of 1191, in favour of a higher low and the next major upside extension to medium-term resistance at 1307. Ultimately, only a weekly close back below 1191 would delay the newly adopted constructive outlook.

Screen Shot 2016-04-01 at 6.13.05 AM

  • R2 1283.50 – 10Mar/2016 high – Strong
  • R1 1244.10 – 30Mar high – Medium
  • S1 1208.35 – 28Mar low – Medium
  • S2 1191.50 – Previous Resistance – Very Strong

GOLD (SPOT) – fundamental overview

GOLD has been very well supported in recent dips, with the yellow metal finding solid demand in 2016 on the back of fears over the limitations of exhausted monetary policy and broad based currency weakness. But it has been this latest sell-off in the Buck, following dovish Yellen speak that has inspired this week’s recovery. Still overall, whether the US Dollar is bid or not is becoming less relevant, with risk sentiment likely to be the primary driver. Any weakness on this front will continue to bolster the yellow metal.

Feature – technical overview

USDSGD is finally poised to turn back up after a period of intense correction. Overall, the structure remains constructive, with current dips seen well supported into the 78.6% fib retrace off the 2015-2016 low to high move at 1.3425. Look for the market to find a meaningful base in the 1.3400s ahead of the next major upside extension. Ultimately, only a weekly close below 1.3400 would compromise the outlook.

Screen Shot 2016-04-01 at 6.13.22 AM

  • R2 1.3737 – 28Mar high – Strong
  • R1 1.3583 – 30Mar high – Medium
  • S1 1.3425 – 78.6% Fib Retrace – Strong
  • S2 1.3412 – 31Mar/2016 low – Strong

Feature – fundamental overview

Tuesday’s dovish speech from the Fed Chair has proven to be a major support for emerging market currencies. Contrary to recent Fed speak, Yellen has come out dismissing any sense of imminence for future rate hikes and this has been having a stabilising influence over risk correlated assets, with yield differentials concurrently widening back in favour of these markets. The Singapore Dollar has rallied back to fresh yearly highs in response, but could start to find stiff resistance into critical USDSGD fibonacci support. Looking ahead, the market will start to position for today’s all important monthly employment report out of the US. Risk sentiment has come off into Friday despite a solid round of China manufacturing data, something that is already weighing on the Singapore Dollar.

Peformance chart: Five day performance v. US dollar

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