Forex Market News | Friday 3rd June, 2016
Foreign Exchange investors who were looking for clarity from yesterday’s ECB policy announcement would have been disappointed as comments from Mario Draghi failed to drive the single currency beyond recent ranges. Although the EUR/USD posted a 1 week high of 1.1220 prior to the meeting, the pair gave up those gains after the press conference to settle at 1.1150 at the NY close.
And while the ECB officials didn’t say anything particularly negative about the financial conditions in the European Union, the reiteration of more possible stimulus, expansion of the current QE operations and fears over a “Brexit” vote was enough keep many traders on the sidelines.
Looking ahead to today’s US Non-Farm payroll report (NFP), there is a strong possibility that the recently settled Verizon strike could skew both the headline jobs growth number as well as the average hours worked components of the report.
The Verizon strike affected close to 40,000 workers at the Telco giant, but employment growth should still be strong enough to confirm a tightening labor market and support recent FOMC views that the FED is close to lifting the FED funds target soon.
According to a Reuter’s survey of economists, NFP likely increased by 165k in May after rising 160k in April. The jobless rate is forecast to drop by one-tenth of a point to 4.9%. The same report last week suggested that the month-long strike could slice 35,000 jobs from the headline number and without the strike employment for May would have risen to close to 200k.
The striking workers, who returned to work on Wednesday, were statistically regarded as unemployed since they did not receive a salary during the payrolls survey week.
On balance, it’s likely that as long as the hourly wages data prints in the positive .2% area and the unemployment rate is reported at 5.0% or lower, market participants will accept the report as consistent with a pick up in US growth in Q2 and support recent USD gains. In this sense, we suggest that there could be an asymmetrical response to a better-than-expected headline number.
As such, we suggest maintaining short EUR/USD positions and adding to short positions up to 1.1180. We see scope for range extension down to 1.0970 and only a NY close above 1.1275 changes the near-term bearish outlook.
The USD/JPY was lifted last week on the prospects that the Abe government would postpone the scheduled 2017 sales tax increase on the notion that it would be the first step to further fiscal stimulus. The Government made the change official and the USD/JPY has dropped every day since along with the Nikkei 225 index.
This underscores the theme that the primary driver in the ¥en is still global equity markets, in general, and the Nikkei 225 specifically. The growing consensus that the FED will lift rates in either June or July has had a dampening effect on all G-7 stock indexes. We believe this dynamic is transitory and that empirical evidence shows that at least the US stock market can rally in a higher interest rate environment.
Both of our trade suggestions to buy USD/JPY at 109.50 and 110.80 were stopped out at 110.30 for a small gain. Looking at the short-term momentum indicators, it’s likely that a USD positive response to NFP will be needed to drive the USD/JPY higher. As such, Synergy FX suggests short-term traders can look to buy USD/JPY at 109.20 o/s with an initial target at 111.30 with a 108.60 stop.
The string of weaker Australian economic data came to an abrupt stop this week as both the GDP and Trade Balance data printed better than expected. And while the internal components of the reports weren’t as strong, the AUD/USD has had a bid tone all week. Our trade suggestion to sell at .7230 was stopped out at .7290 and Synergy FX suggests staying on the sideline for the weekend.
A mid-week phone poll showing the “leave EU” camp was closing the gap in the upcoming UK referendum was all it took to pound the Sterling below the 30-day moving average for the first time since mid-April. Our suggestion to buy the GBP/USD at 1.4570 was stopped out at 1.4505 and is trading lower still.
As mentioned before, technical analysis in this pair is no match for the fundamental rumours and fears of the UK leaving the EU. As such, we suggest staying on the sidelines into the weekend.