USD Mixed After Indecisive Action Friday In The Wake Of Better Than Expected US Employment Report.
Forex Market Update: USD Mixed After Indecisive Action Friday In The Wake Of Better Than Expected US Employment Report. Focus Shifting To ECB’s Trichet On Thursday
US ISM Non-manufacturing number out today. AUDUSD survived test of key support, but RBA and Trade Balance release on tap tonight.
MAJOR HEADLINES - PREVIOUS SESSION
Overnight developments:
New Zealand Q1 Private Wages ex Overtime rose 0.7% vs. 0.9% expected Australia Apr. AiG Performance of Services fell to 47.3 from 54.9 in March Australia Q1 House Price Index rose 1.1% vs. 0.0% expected and 4.1% in Q4 THEMES TO WATCH - UPCOMING SESSION
Key event risks today (all times GMT):
UK Markets Closed for Bank Holiday Norway Apr. PMI (0700) Norway Apr. Unemployment Rate (0800) US Apr. ISM Non-manufacturing (1400) US Fed’s Bernanke to Speak about Mortgage Foreclosures (0030) Australia Mar. Trade Balance (0130) Australia RBA Cash Target Announcement (0430)
Market Comments
The US employment report was far better than expected, but the market could only muster a less than decisive and mixed reaction, in perhaps a bit of a short term warning sign for the USD bullish view. The non-farm payrolls number was far better than -75k expected at -20k, the Unemployment rate surprisingly ticked down to 5.0% vs. a rise to 5.2% expected. There are countless explanations out there for both readings, with pessimists pointing out the possibility that the number of people who have given up looking for work are not counted as being part of the workforce, while the optimists see this as a positive sign of the negative forces in the economy losing momentum. Far too early to tell in any case, and the trend to higher unemployment is still a trend and negative payrolls numbers are still a sign of the economy in distress. If FX action was a bit muted, interest rates spiked dramatically higher on the employment report. But the rally in yields affected both sides of the pond and left US-European interest rate differentials largely unchanged at the end of the day.
The broad USD reaction to the report was mixed, with JPY and CHF still weaker vs. the USD due to the strong continued rally in risky assets. Most other USD pairs are largely back where they started from before the employment report. AUDUSD tried below 0.9300, but has rallied back strongly late Friday and in today’s Asian session as commodities may have put in a floor for now and the focus seems to have shifted back to stronger equity markets. The AUD performance looks particularly strong considering the ugly service index data out overnight. EURUSD briefly touched new lows Friday, but has rallied back above pre-payrolls levels as of this writing. We eye the USDJPY rally with a bit of suspicion at the moment, even though it has broken key resistance at this point, because Japan was on holiday today and due to the USD action elsewhere. New highs will as always be dependent on continued rally in risk appetite - something we have suggested must be nearing a top soon as the market seems to have become extremely bullish on the future relative to current circumstances.
Friday saw NOK catching a bid again with the huge recovery in energy prices following a swoon earlier last week that was clearly triggered by a stronger USD. Commodities are volatile as the market tries to weigh which factor is more important: risk appetite (with rallying stock markets suggesting positive outlook for global growth and therefore commodity demand) or the USD (since most major commodity prices are traded in USD and the weak USD has been a strong focus in these markets). EURNOK, after staging an attempt at finding support close to its 200-day moving average, has now closed below that level and once again is focusing on the big trendline support (coming in at current levels close to 7.9000) for the trend stretching back to October of last year. Important Norwegian data out today may further influence the action. The rally in crude oil has also capped the USDCAD action for now, despite further pressure for a continued rally from the interest rate picture.
Looking ahead at the events for the week, besides today’s US ISM non-manufacturing data (we see potential for an ugly number here) and tomorrow’s Services PMI data from Europe, the market will begin to focus on Trichet’s press conference Thursday in anticipation of the super-hawk’s guidance now that we have better signs of a slowing trajectory in some of the European data. Watch the 55-day moving average in EURUSD for short term indication of whether any Euro rally will extend a bit. We are turning toward the bullish view for the USD, but turnarounds of well established market trends can be treacherous. The action Friday suggests short-term risk of some consolidation back to the weak side for the USD before it possibly rallies further out.
Chart: AUDUSD
AUDUSD tested a very key level yesterday - both the 55-day moving average and the rising trendline. This was after breaking key short term support in the 0.9300 area. The subsequent rally is a reflection of the positive mood and continued robust risk appetite. If the pair can scratch back above 0.9500 and the mood remains positive, a further rally to new multi-year highs may be in the works, though we wonder how long the market can ignore the developments in favor of a strong sell-off in this pair and the tremendous risk to the AUD if the global mood turns sour again. Watch the RBA guidance tonight and Trade Balance release, as the Australian yield curve has been steepening of late and as the Aussie terms of trade are on a deteriorating, if choppy, trend.
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