Special report: US Jobs Preview – Was Last Month a Blip?
Today’s report: The Storm Before the Storm
On any other US jobs report day, one might expect a healthy consolidation as market participants position into the risk. But not so on this Friday, with so many crosswinds in the mix. It should be a wild one, with the US jobs report having plenty of volatility risk of its own given last month's horrid NFP miss.
Wake-up call
Chart talk: Major markets technical overview video
- multiple drivers
- tough talk
- diverging flow
- SNB averts
- Commodity capitulation
- jobs reports
- inflation expectations
- yields low
- Macro players
- USDTRYÂ
Peformance chart: Five day performance v. US dollar
Suggested reading
- Less ‘Impulsive' China: Bracing for Lower Growth, G. Frieda, Pimco(May 2, 2017)
- Race for Speed Among Algo Traders Hits Peak, G. Meyer, Financial Times (March 30, 2017)
Chart talk: Technical & fundamental highlights
Choose pair:
EURUSD – technical overview
The market has now cleared major resistance at 1.0906, breaking to a fresh 2017 high, while confirming a higher low at 1.0570. The break strengthens the case for a major bottom and opens the next upside extension towards the 1.1400 area. Setbacks should be very well supported, with only a break back below 1.0570 to compromise the constructive outlook. On a short-term basis, there is room for a corrective decline to fill a gap from several days back between 1.0730 and 1.0820.
EURUSD – fundamental overview
The Euro has been on fire, feeling great about reduced risk to the EU on the back of expectation for a Macron victory in the French election this weekend that is now viewed as nothing more than a formality. Meanwhile, ongoing soft US Dollar policy talk on the US side and a belief the Fed will continue to err on the side of accommodation are adding to the bid tone as the market rotates back into the Euro as an attractive, liquid diversification option. Remember, Eurozone inflation data has also been ticking up, something that makes yield differentials more favourable for the single currency as well. As far as today goes, volatility from cross related demand against the commodity currencies is propping, while looking ahead, we have the always anticipated employment report out of the US. Finally, there is a batch of Fed speakers to take in as well, with Fischer, Williams, Rosengren, Evans, Bullard and Yellen all due. Eurozone retail PMI data isn’t expected to factor into price action.
GBPUSD – technical overview
This latest push through 1.2775, the December 2016 peak, is a significant development as it potentially ends a period of bearish consolidation, warning of the formation of a more meaningful longer-term base. The break ends a multi week consolidation mostly ranging between 1.2000-1.2700 with the bullish move paving the way for a measured moved upside extension equal in size back into the 1.3500 area in the days ahead. Still, there is rise for a short-term pullback, though any declines are now classified as corrective and should be well supported ahead of 1.2500 in favour of a higher low and bullish resumption.
GBPUSD – fundamental overview
The Pound has done a nice job holding onto its recent run of impressive gains despite tough talk between EU officials and PM May and the PM's hard-line Brexit rhetoric. While this has prevented the Pound from extending its run of 2017 highs, setbacks have been mild with the Pound benefiting from offsetting flow from a solid run of UK PMI data this week, cross related demand against the commodity currencies and US Dollar offers on soft US Dollar policy from the US administration and belief the Fed will once again scale back it’s rate hike timeline. Looking ahead, the big risk for the day comes with the monthly employment report out of the US, with the market waiting to see if last month’s NFP miss was just a one off or a sign of deeper distress. We also get a healthy run of Fed speak from Fischer, Williams, Rosengren, Evans, Bullard and Yellen.
USDJPY – technical overview
The recent break and daily close back above 112.20Â took the immediate pressure off the downside, though the market has now run into falling trend-line resistance around 113.00 that still warns we could see a topside failure and medium-term lower top ahead of a bearish continuation back towards and below the 2017 low ahead of 108.00. A daily close above 113.05 would negate this prospect, while a close below 111.75 will strengthen it.
USDJPY – fundamental overview
The ongoing bid for equities along with a Fed decision that still has the central bank looking to two more hikes this year have resulted in a lower Yen this week. But at the same time, there has been healthy demand into this dip, with the commodity market capitulation and geopolitical risk associated with North Korea weighing on sentiment. Technicians have been talking about USDJPY trend-line resistance that has initially done a good job capping gains in the major pair. Looking ahead, the big risk for the day comes with the monthly employment report out of the US, with the market waiting to see if last month’s NFP miss was just a one off or a sign of deeper distress. We also get a healthy run of Fed speak from Fischer, Williams, Rosengren, Evans, Bullard and Yellen.
EURCHF – technical overview
Rallies continue to be very well capped, with the market adhering to a broader downtrend of lower tops and lower lows. The most recent rallies have stalled above 1.0800 and a fresh medium-term lower top is sought below 1.0900 ahead of the next major downside extension through the 2016 base at 1.0624 and towards 1.0400 further down. Ultimately, only back above 1.0900 would negate the overall bearish outlook.
EURCHF – fundamental overview
The SNB has been helped along in a big way since Emmanuel Macron has raced out in front of the polls as the next President of France. The market has priced in Macron’s victory on Sunday, with the Euro benefiting from the significantly reduced risk to EU stability. This has pushed the EURCHF rate well off concerning levels in the 1.0600 area, with the SNB welcoming the weaker Franc. Still, while the SNB can relax a little, it shouldn’t relax too much as the threat of a vulnerable risk market should be keeping the central bank on high alert. If global risk sentiment shows any sign of deterioration as reflected through falling global equities, it would be difficult to see a scenario where the SNB could fight against such widespread demand for the Franc.
AUDUSD – technical overview
The impressive rally in 2017 has stalled out into significant medium-term resistance ahead of 0.7800. A recent break back below 0.7500 strengthens the prospect for some form of a top and could open the door for a deeper drop back towards the 0.7000 area in the days ahead. Last week’s drop below 0.7475 strengthens the bearish outlook and any rallies should be very well capped ahead of that previous support now turned resistance at 0.7600.
AUDUSD – fundamental overview
Unlike its commodity currency cousins, the Australian Dollar has yet to break to a fresh 2017 low. At the same time, if things continue the way that have been, it won’t be long before Aussie achieves this feat. Sliding base metals prices have been a major thorn at the side of the Australian Dollar of later, with declines in iron ore , GOLD and copper hurting the correlated commodity currency. Meanwhile, the Fed decision has opened some US Dollar buying with the Fed downplaying a recent run of soft US data and staying on course for two more hikes this year. The RBA SOMP has come out, offering nothing new to chew on following the recent RBA decision in which the central bank already flagged this sentiment. Looking ahead, the big risk for the day comes with the monthly employment report out of the US, with the market waiting to see if last month’s NFP miss was just a one off or a sign of deeper distress. We also get a healthy run of Fed speak from Fischer, Williams, Rosengren, Evans, Bullard and Yellen.
USDCAD – technical overview
The uptrend in this market remains firmly intact, getting added confirmation following this latest break to a fresh 2017 high and through a key peak from December 2016 at 1.3600. But the market is looking super stretched at the moment which warns of a short-term correction ahead. But any setbacks should now be very well supported above 1.3224 on a daily close basis in favour of an eventual push towards the next measured move upside extension objective in the 1.4000 area. Ultimately, only back below 1.3224 would give reason for pause and delay the constructive outlook.
USDCAD – fundamental overview
The Canadian Dollar has suffered a great deal in recent days, extending declines to fresh 2017 lows. Thursday’s solid Canada trade data has done nothing to slow the Loonie decline as the currency contends with an awful confluence of negative drivers. The capitulation in commodities has been a big one, with OIL setbacks turning heads on supply glut concerns, while US trade policy and new tariffs imposed on Canada is another big one. Meanwhile, fear over contagion from liquidity woes at ailing mortgage lending giant Home Capital Group is only adding to the fire sale price action. Looking ahead, the Canadian Dollar will be praying it comes out on the right end of today’s double whammy of monthly employment reports. We also get a healthy run of Fed speak from Fischer, Williams, Rosengren, Evans, Bullard and Yellen.
NZDUSD – technical overview
The overall pressure remains on the downside with the market expected to be very well capped on rallies. The weekly chart is reflective of this fact as it looks like we’re seeing the formation of a major top off the 2016 high, with outlook strengthened on this week’s breakdown to a fresh 2017 low. As such, expect the market to continue to roll over in the days ahead, with setbacks projected towards medium-term support in the 0.6600s. Only back above 0.7100 compromises the outlook.
NZDUSD – fundamental overview
The weakness in the commodity bloc has not been lost on the New Zealand Dollar, with the currency extending declines to fresh 2017 lows and vulnerable to deeper setbacks on the back of falling base metals, worry over US protectionism and geopolitical risk. Fortunately for Kiwi, this week’s well received GDT auction, solid employment data and higher two year inflation expectations reading have helped to offset some of the selling, while record high US equities have also made things a lot less ugly for the risk correlated commodity currency. Looking ahead, the big risk for the day comes with the monthly employment report out of the US, with the market waiting to see if last month’s NFP miss was just a one off or a sign of deeper distress. We also get a healthy run of Fed speak from Fischer, Williams, Rosengren, Evans, Bullard and Yellen.
US SPX 500 – technical overview
The market was unable to break down below major support at 2320, leaving the pressure on the topside and opening the door for this latest run back to record highs. At this point, a push through 2400 will open the door for the next major upside extension towards 2500, while at a minimum, a break back below 2368 would be required to alleviate immediate topside pressure.
US SPX 500 – fundamental overview
The Fed’s decision to downplay a recent run of softer US economic data was interpreted as mildly hawkish, as it kept the central bank on course to deliver two additional rate hikes this year, something the market has been doubting. Still, investors aren’t budging, even in the face of distressing commodity market capitulation, seemingly unwilling to rotate away from stocks while rates remain at depressed levels, with stocks the only game in town. The Fed has also consistently failed to deliver when it comes to forward guidance and this bet has paid off for years, something investors have no reason to doubt, until they do. Of course, the market will get more insight later today from the US jobs report, while also taking in a batch of Fed speak from Fischer, Williams, Rosengren, Evans, Bullard and Yellen.
GOLD (SPOT) – technical overview
The market has been very well supported since basing out ahead of 1100 in 2016. This latest break to another yearly high through 1265 strengthens the outlook, confirming the next higher low at 1195, while opening the door for the next major upside extension towards a measured move into the 1335 area. Look for any setbacks to be well supported ahead of 1215, with only a break back below 1195 to compromise the constructive outlook.
GOLD (SPOT) – fundamental overview
The US Dollar recovery in recent sessions has contributed to this latest decline, with setbacks accelerating after the Fed downplayed a recent run of softer data, giving the Buck an added boost. Meanwhile, a broad based capitulation in commodities markets is adding to downside pressure. Still, solid demand from medium and longer-term players continues to emerge on dips, with these players more concerned about the limitations of exhausted monetary policy, extended global equities, political uncertainty, systemic risk and geopolitical threats. All of this should continue to keep the commodity in demand, with many market participants also fleeing to the hard asset as the grand dichotomy of record high equities and record low yields comes to an unnerving climax.
Feature – technical overview
USDTRY has been in a period of choppy consolidation since topping out at a fresh record high earlier this year. At this point, despite the latest pullback, the structure continues to favour the topside, with scope still existing for a bullish continuation to yet another record high. At a minimum, a daily close back below 3.5000 would be required to potentially force a shift in the outlook and open the door for a more significant bearish corrective phase.
Feature – fundamental overview
A lot of positives for the Lira of late, with this week’s hot CPI data confirming recent hawkish moves by the CBRT. The Lira had been bid up in recent days following  another CBRT surprise tightening by way of the “late liquidity window” (LLW) and an upbeat Minutes highlighting reduced risk to the economy and a better growth outlook. And on Wednesday, the CBRT turned the tightening screw some more, closing off funding at the BIST overnight repo, with the likely intent of diverting bank funding through the LLW rate. But overall, despite recent gains, the currency market is still taking time to digest the latest result in the Turkish referendum which produced a narrow “Yes” victory for President Erdogan. On the one hand, the result can be viewed as Lira supportive as it reduces political uncertainty which should translate into more stable economic policy. On the other hand, the move to grant an unlimited amount of power to the President could pose risk on the global stability front, which would be viewed as Lira bearish. It’s worth noting that one major bank’s TRY positioning indicator showed FX managers holding long exposure at more than 300% of the average hold earlier this week, warning long TRY is overcrowded. This is even more compelling when one considers broader macro risk.