Special report: US Jobs Report – Does it Still Matter?
Today’s report: Euro Holds Up While Other Currencies Roll Over
We're getting ready to close out the week, but not before taking in the always highly anticipated US jobs report. Interestingly, while the US Dollar has extended declines to fresh yearly lows against the Euro and Pound this week, it has managed to hold against most other currencies.
Wake-up call
Chart talk: Major markets technical overview video
- Euro demand
- cautious BOEÂ
- USD outflows
- SNB
- RBA SOMP
- loaded calendar
- bulls reconsidering
- inflation
- Macro themes
- USDZAR
Peformance chart: Five day performance v. US dollar
Suggested reading
- Bitcoin Exchange Had Too Many Bitcoins, M. Levine, Bloomberg (August 2, 2017)
- Survival guide for Elon Musk's AI Apocalypse, A. Baciu, Quartz (August 3, 2017)
Chart talk: Technical & fundamental highlights
Choose pair:
EURUSD – technical overview
The market has finally traded up through a critical range high that had capped gains since 2015. The breakout now suggests a longer term base is in place ahead of a more significant recovery over the coming weeks and months. Still, daily studies are extended on a shorter-term basis and risk is building for a bearish reversal. Key short-term support comes in at 1.1786 and a daily close below this level would likely inspire an overdue correction.
EURUSD – fundamental overview
The Euro took the day off from making a fresh high against the Buck on Thursday, though it was very comfortable retaining its bid tone into a Friday featuring the monthly employment report out of the US. The idea of position squaring and profit taking didn’t really seem to apply, despite the market having already run so far and fast, with traders seemingly still thinking about a longer-term bullish structural shift, eyeing that next major barrier at 1.2000. Economic data didn’t necessarily hurt the Euro’s cause either. Although Eurozone services PMIs were on the soft side, Eurozone retail sales were impressive, while ISM non-manufacturing offered yet another data disappointment on the US side. We also saw the Euro supported on cross related EURGBP demand to fresh 2017 highs following the BOE policy decision. Looking ahead, the focus will be on the US employment report, which is previewed here. But other standouts on the day include Germany factory orders and US trade.
GBPUSD – technical overview
On a longer-term basis, the breakout back in April through 1.2775 suggests the major pair has put in a meaningful base off the October 2016 +30 year low at 1.1840, with the door open for a test of a measured move extension at 1.3500. Short-term however, there is risk for a period of correction and consolidation before that next push to 1.3500. Thursday’s bearish outside day strengthens this outlook. Still, any setbacks are now expected to be well supported in the 1.2700s, with only a break back below 1.2590 to compromise the constructive outlook.
GBPUSD – fundamental overview
In our BOE preview call we had warned to look out for a pullback in the Pound, with the greater risk tilted to a dovish result. And the BOE did not disappoint, with the more Sterling bearish 6-2 vote split in favor of a rate hold, cut to growth forecasts and weaker inflation outlook. The MPC's reference to potentially needing to see rates rise faster was easily overshadowed by the other highlighted developments, with the UK currency pulling back sharply as a result. The Cable rate backed off from a 2017 high posted early Thursday and has remained on offer into Friday. This also propelled EURGBP to a fresh 2017 high, with this rate tripping stops above the 0.9000 psychological barrier. Softer US ISM non-manufacturing data did however save the Pound from a more intense decline. Looking ahead, absence of first tier data on the UK calendar will leave the focus on the US employment report and US trade data.
USDJPY – technical overview
The market remains confined to a multi-day range. The latest topside failure above 114.00 strengthens this outlook, leaving the door open for a drop back towards range support in the 108.00s, also coinciding with the 2017 low from April. Ultimately, it would take a clear break through 114.50 to negate this outlook and shift the focus back to the topside.
USDJPY – fundamental overview
The major pair was back under the 110.00 barrier on Thursday and could be at risk for another slide back towards the 2017 low. Overall, as dovish as the BOJ has been, and as bid up as equity markets are, it still hasn’t been enough to offset an intense broad based negative sentiment for the US Dollar. This is a market that has been dominated by US Dollar outflows from ongoing disruptions at the White House, softness in US economic data and a Fed that is expected to scale back on normalisation as a result. On Thursday, the softer than expected US ISM non-manufacturing print was seen as a source of this latest round of downside pressure on the major pair. Looking ahead, attention shifts to the monthly employment report out of the US and some US trade data.
EURCHF – technical overview
The market has pushed up to a fresh 2017 and multi-month high through massive resistance in the form of the 2016 peak at 1.1200. This takes the rate to its highest level since the collapse of January 2015, with very little in the way of resistance until 1.2000. However, daily studies are now highly overextended, warning of a corrective reversal in the sessions ahead. Look for any additional upside to be well capped below 1.1600 on a daily close basis in favour of a short-term pullback towards that previous resistance at 1.1200.
EURCHF – fundamental overview
Elevated risk sentiment has been a big friend to an SNB committed to doing what it can to discourage appreciation in the Franc. This, along with solid Eurozone data, more hawkish ECB expectations and ongoing SNB activity have helped to push the exchange rate through 1.1500, with the market at its highest level since the January 2015 crisis. SNB Jordan has also been more active on the wires of late, adding to the bid tone as he reaffirms the central bank’s policy strategy. However, the SNB could also be doing whatever it can to weaken the Franc now in anticipation of a tougher battle ahead. Any capitulation in US equities is likely to rattle global sentiment and invite an intense wave of unwanted Swiss Franc demand on the safe haven flow.
AUDUSD – technical overview
The latest surge through major resistance at 0.8000 suggests the market could be in the process of carving out a meaningful longer-term base. The next major resistance level comes in at 0.8163, the high from May 2015. A clear break above would confirm the bullish structural shift. However, shorter-term technicals are extended and risk is building for a healthy bearish reversal in the sessions ahead. A daily close below 0.7876 would set up this anticipated pullback.
AUDUSD – fundamental overview
The Australian Dollar has been less inclined to extend its 2017 run this week, with most of the setbacks coming from Tuesday’s RBA decision. While the RBA wasn’t exactly downbeat, there was enough concern with respect to the elevated Australian Dollar, wages, inflation and housing to result in some profit taking on Aussie longs. But setbacks have been well supported thus far, with Aussie perhaps getting some help on Thursday from another round of soft US data, this time by way of US ISM non-manufacturing. Looking ahead, the big focus will be on the US employment report, though we also get US trade data. Earlier today, Aussie retail sales came in slightly stronger than expected though a good deal softer than previous, while the RBA SOMP didn’t offer all that much in the way of new insights. Aussie was slightly bid in the aftermath.
USDCAD – technical overview
There has been a clear shift in the outlook over the past several days, with declines holding below 1.3000 and the market collapsing to a fresh 2017 low through the 2016 base at 1.2461. However, technical studies are in the process of turning up from deep oversold territory, warning of the possibility for an overdue bullish reversal to allow for these studies to unwind. The break back above 1.2575 sets up the possibility for additional corrective upside in the sessions ahead towards 1.2800.
USDCAD – fundamental overview
We’re seeing a mild bout of Loonie selling this week which seems to be driven on profit taking following a large move and perhaps on some renewed selling in the price of OIL. Overall, however, the Canadian Dollar is still trading just off its recent plus two year high (USDCAD low) as economic data and central bank policy divergence influence direction. Looking ahead, today’s calendar is loaded and volatility is expected as the market takes in monthly job reports and trade data out of both Canada and the US, along with Canada Ivey PMIs.
NZDUSD – technical overview
The market has extended through a major barrier at 0.7500 with the breakout opening the door for a bullish continuation towards next key resistance going back to April of 2014 at 0.7740. Daily studies are however stretched, suggesting we could initially see a period of healthy corrective declines before the market considers a bullish resumption. Look for a daily close back below 0.7400 to strengthen this outlook and accelerate declines.
NZDUSD – fundamental overview
The New Zealand Dollar has been showing signs of exhaustion since pushing to a two year high through 0.7500. A recent run of softer data including CPI, GDP, employment and the weakest GDT auction since March, have all forced Kiwi bulls to reconsider their exposure. Still, broad US Dollar bearishness has helped to support dips and there will likely need to be a positive shift in US Dollar sentiment to have a meaningful weighing influence on the Kiwi rate despite all of the negative Kiwi drivers. Thursday’s US ISM non-manufacturing miss did a good job supporting Kiwi off the lows. Looking ahead, today’s calendar features the US employment report, with US trade data also due.
US SPX 500 – technical overview
The market has extended its record run, trading into a key measured move objective at 2480. Though this trend is quite stretched, setbacks continue to be well supported on the smallest of dips and only a daily close back below 2400 would suggest the market is contemplating a possible reversal. Initial support comes in at 2458.
US SPX 500 – fundamental overview
The US equity market has done a good job proving it can hold up into any dip and can keep pushing to record highs as it focuses on rates staying lower for longer and the Fed continuing to underdeliver on forward guidance. While rates may not be going lower in the US, it seems a dovish policy normalisation is the next best thing and enough to keep the artificially supported rally going. But one thing that could rattle investor sentiment are signs of upward pressure on inflation. This week’s higher core PCE reading is one of those signs and the market may get a little more jittery if today’s hourly earnings in the US employment report come in above forecast. The implication is that higher inflation would force the Fed into needing to be more aggressive about hiking rates, something equity market investors do not want to see.
GOLD (SPOT) – technical overview
Setbacks have been well supported ahead of 1200, with the latest push back above 1250 setting the stage for a bullish resumption through 1300. Only below 1200 would compromise the constructive outlook.
GOLD (SPOT) – fundamental overview
Solid demand from medium and longer-term players continues to emerge on dips, with these players more concerned about exhausted monetary policy, extended global equities, political uncertainty, systemic risk and geopolitical threats. All of this should continue to keep the commodity supported around 1200, 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. Certainly the US Dollar under pressure in 2017 is adding to the metal’s bid tone as well, but there is a growing sense that even in a scenario where the US Dollar is bid, GOLD will hold up on risk off macro implications.
Feature – technical overview
USDZARÂ is showing signs of the formation of a meaningful base since bottoming out around 12.30 earlier this year. A recent push back above 13.00 strengthens this outlook and sets the stage for a continuation of gains towards next key resistance at 13.71 further up. Any setbacks should ideally be well supported ahead of 12.55, with only a break back below this level to negate the constructive outlook.
Feature – fundamental overview
The Rand has come under renewed pressure this week on a plethora of drivers. On the local front, the news that ANC MPs must vote along party lines on the Zuma no confidence vote reduces odds President Zuma will be ousted from government. Meanwhile, Moody’s has been out warning that the SARB is under political pressure which could end up resulting in additional downgrade speculation. Finally, South Africa manufacturing PMIs have come in soft. Meanwhile, there have been signs of renewed US Dollar demand on the horizon, with the Buck technically extended short term and US equities at risk for an overdue correction that would invite additional downside pressure on the Rand. It’s worth noting the Rand is the weakest performing EM currency over the past week.