U.S. Dollar Trading (USD) Was able to make modest gains across the board as EUR/USD led the majors lower yesterday. With US stocks remaining unable to bounce however, the USD/JPY was not able to break above 107.40 and as a result the biggest movers were EUR/JPY and GBP/JPY lower. Today we have the monthly US Jobs report in the NFP forecast at 203k vs. 215k last month. With a weak ADP number i think the street will be happy with anything above 180k and lead to USD gains over the session. The reaction though at these levels especially for stocks and EUR/USD will give us a clue to the rest of May's trade. If stocks remain weak even on strong numbers then another major 10% move lower like in February is increasingly possible.
The Euro (EUR) because of the failure at 1.16 on Tuesday the daily charts are looking very toppy for the EUR/USD now we are back at 1.14. The 1.15+ area has now held the last 3 attempts higher in the past 18 months and the downside serious support is hard to see till under 1.1000 so if the bulls abandon this topside push then technically the market can easily descend lower next week. This makes the markets reaction to the NFP today increasingly important and where we close the week will be very telling for the technical traders. The Sterling (GBP) has been under pressure since Tuesday and the bulls have always been worried about the UK Brexit vote coming back into the frame and as this draws nearer may once again become a major theme in the market and the uncertainty can easily allow for further downside. If the EUR/USD is also under pressure then the potential for heavy losses on the GBP/USD towards 1.400 in the coming weeks is even more likely. At the moment though it is not a cause of concern but it was only last month we saw EUR/GBP above 0.8000.
The Japanese Yen (JPY) the BOJ is hoping for some relief tonight from the NFP as the stock market weakness is capping the USD/JPY rebound and further losses would bring the USD/JPY back into striking range of Y105 and maybe the inevitable test just to see what the BOJ/MOF does. They have said they will intervene if the market is too one sided but are very wary of being called a currency manipulator. In this case though they probably would get away with a little support to stop the slide. A break below Y105 will have spillover effects into the EUR/USD and may allow for a 1.16 retest. The Australian Dollar (AUD) was smashed for the 3rd time in the last 3 weeks as the SOMP from the RBA today left the door open for more rate cuts in the future. The selling has been sharp but a little overdone as the timing of the next cut is likely well away and soon the market will focus on the more positive aspects of the commodity rebound. I would be cautious getting too bearish too quickly here especially against the NZD and CAD. AUD/JPY and EUR/AUD are different stories and the AUD is likely to struggle against these two until the stock market and Oil find support.
Stocks Indices(DAX) a sharp rally off 9800 was welcome but lasted only 1 hour and underscores how weak the market is lately. The failure to mount even a meager 2 day rally is disconcerting and the bearish predictions are building up in the financial media. I still favour buying into dips but will place this on review if we end lower again tonight regardless of NFP. US Stocks (DOW) was weaker than than the Dax and Nikkei overnight, playing catch up with the rest of the market and as with the DAX the downside is firmly in view. Tonights NFP is likely to underwhelming and how the market interprets this for the FED rate hike Path in terms of delaying until after the elections will be key for forming a trading plan in coming weeks. If weak data leads to stock weakness tonight that would be a very bearish outcome. For the past 3-4 years a bad NFP would result in a kneejerk move lower then a recovery for the rest of the session as lower rates become more likely for longer.
Pairs to watch
EUR/USD Needs to capitalize and hold onto gains from a weak NFP
S&P500 any attempt lower needs to rally to fresh day highs to help stem the growing bearish sentiment
Economic Data Ahead
US April NFP forecast at 203K vs. 215K previously.
CAD April Employment Change forecast at 0.2k vs. 40k previously.
By Anthony Darvall (TonyD)