Forex Market News | Monday 6th June, 2016
Over the last few months, it’s become evident that FED Chair Janet Yellen, along with other voting FOMC members, have placed more emphasis on the wages and unemployment components of the labor matrix, and less emphasis on the new jobs in reference to their “data dependent” analysis of the overall US economy.
However, after last Friday’s shocking 38,000 new jobs on the headline Non-Farm Payroll (NFP) number, it’s likely that Ms Yellen will make some direct reference to the data miss when she speaks at the World Affairs Council today in Philadelphia at 12:30 NY time.
After Friday’s steep sell off in the USDX, FX investors will be listening for comments which clarify whether the FED chief is looking at Friday’s report as an outlier, and not consistent with the vast majority of economic indicators, or as a signal that Q2 growth will not rebound as briskly as expected.
Our base case has been that a June rate adjustment was not particularly likely given the proximity to the UK referendum and the fact that FED officials have very little stomach for taking controversial positions. However, given the broader economic information set, we are reluctant to rule out a July rate hike and see no compelling reason not to expect the weakness in the May report to be a statistical fluke; which is not uncommon from the Bureau of Labor Statistics.
For example, in March of 2015 the headline NFP number was 84k, in December, 2013, there were 45k jobs created and in April 2012 job growth fell to 75k. In none of these cases did the disappointing headline number signal the end of the economic or labor cycle. In fact, in two of the four examples given, the following month’s headline NFP jobs growth was over 200k.
As a labor economist and experienced FED Governor, Ms Yellen will likely look past the noise of high frequency data and focus on the underlying positive growth signals. From that perspective, very little changed last Friday. Less than two weeks ago, Ms Yellen acknowledged that it might be appropriate to raise rates again in coming months. Without being too specific, if she simply maintains that type general assessment, it would be sufficient to keep the July FOMC meeting alive.
As such, with the ECB still expanding their QE and the Japanese economy still contracting, once the dust settles from last week’s terrible NFP report we expect the USD to re-emerge as the cleanest shirt in a dirty pile and recover last week’s losses.
After the NFP release, the EUR/USD posted its third largest advance of the year. The single currency traded up to 1.1360 and sees a key Fibonacci resistance level at 1.1420. Last week’s resistance level at 1.1260 is the initial support level and the four hour parabolic switch point is currently at 1.1235.
The 1.1275 stop level from last week’s trade suggestions were stopped out. Considering that Ms Yellen’s speech today is the last FED speaker before the media blackout, we could see narrow ranges before she takes the podium. We suggest that short-term traders can look to sell EUR/USD at 1.1420 for an initial target of 1.1040 with a 1.1480 stop.
The USD/JPY traded down to 106.30 after the NFP and looked for all money to test the May 3rd low of 105.50. Comments by various Japanese officials about “undesirable currency moves” along with a slight recovery by the Nikkei 225 have stabilized the pair during the Asian session. Our short-term buy suggestion at 109.20 o/s was not triggered and we currently have no position.
We suggest short-term traders can look to buy USD/JPY at 107.35 o/s for an initial target of 109.60 with a 106.10 stop.
The GBP/USD has started the week under pressure as a poll for ITV’s Good Morning Britain program puts the “leave” camp at a 45% to 41% lead over the “remain” camp. The ever tightening referendum is turning decisively political as former PM John Major threw in his two-pence worth condemning the “Brexit” campaign as “squalid” and warning of a “galaxy” of economic hardship if the UK votes to leave the EU.
The Sterling responded by trading down to 1.4350 within minutes of the Asian open. It seems than any manner of technical analysis on the Sterling price action will be deemed pointless as the market is driven by polls and rumors. As such, Synergy FX suggests staying on the sideline for now.
The AUD/USD will come into play tomorrow when the RBA announces if rates will stay on hold or be lowered for the second consecutive month. We don’t expect the RBA to move on rates and look for the pair to be driven by external developments during the US session. The key support level of .7270 looks a bit out of range for now but must hold for the recent technical advance to continue.
Synergy FX suggests short-term traders can look to sell AUD/USD at .7420 or at .7265 o/s for an initial target of .7180 and a .7435 stop, if done.