Aussie Drops Most in Six Months on Solid NFP's data

Good morning,

- Aussie Dollar Gains, Yen Drops as Market Sentiment Recovers.

- The ECB running out of bazookas? The latest data showing weak private sector credit flows in the euro area suggest that might well be the case. The growth of the broad monetary aggregate, M3, slowed to an annual rate of 4.7 percent in December from a recent peak of 5.3 percent in October. That deceleration was mainly a result of a sharp drop in bank credit to the private sector, which contributed only 0.9 percent to the M3 growth, compared with 1.5 percentage points in November. A closer look at the euro area's private sector loan demand indicates that lending to non-financial corporations in December virtually ground to a halt, after hovering around an average 0.4 percent annual increase since last summer.

- Markets are pricing in a 11% chance of a 25bps rate cut from RBNZ's March 9th meeting and 26bps of easing over the next 12 months.-One BoJ Member: Inflation trend has been rising steadily, BoJ needs to implement measures preemptively. Japan economy has continued moderate recovery. Negative rates show BoJ has more room to ease.

- $NZD, $AUD, and $CAD are expected to be the most active majors vs $USD with 1W implied volatility at 13.48, 12.25, and 12.23 respectively.

- President of France Holland and German Chancellor Merkel discussed "Brexit" - French Government.

- The Australian Dollar plunged following the release of January’s US employment data, issuing the largest daily drop in six months against its US namesake. The move lower hints the most recent leg of the multi-year AUD/USD down trend launched early December 2015 may be back in play. From here, near-term support is in the 0.7016-30 area marked by the November 10 low and the 38.2% Fibonacci expansion. A daily close below this barrier opens the door for a challenge of the 0.6947-64 zone (horizontal pivot, 50% level). Alternatively, a rebound above the 23.6% Fib at 0.7111 clears the way for a test of the 14.6% expansion at 0.7161.

- Job growth settled into a more sustainable pace in January and the unemployment rate dropped to an almost eight-year low of 4.9 percent, signs of a resilient labor market that’s causing wage growth to stir. The 151,000 advance in payrolls, while less than forecast, largely reflected payback for a seasonal hiring pickup in the final two months of 2015, Labor Department figures showed Friday. The jobless rate fell to the lowest level since February 2008. Hourly earnings rose more than estimated after climbing in the year to December by the most since July 2009. The moderation in hiring still leaves the job market on solid footing and shows companies are confident about the outlook for domestic sales. A further tightening of labor conditions that sparks wage gains would help assure Federal Reserve policy makers that inflation will reach its goal.

- The Kuroda rally and oversold bounce lead USD/JPY to test resistance near our technical level to get short, or 120.88. USD/JPY did a little better that day, but failed intraday near the 200d moving average. This failure also aligned with the failure to break back above a long term trend line that was support and is now resistance. In our January 28th report, we highlighted multiple trending indicator are pointing lower for USD/JPY and we’d like the opportunity to sell it on a bounce. The signals included, and still do, a bearish Ichimoku cloud cross, the most bearish momentum seen in four years according to RSI and the MACD and Signal line both turning negative. On a weekly closing basis, price closed below major support at 118.40 creating a descending triangle top pattern. This pattern estimates USD/JPY may trade down to 111.90 with temporary support pocket between 115-116. We maintain our bearish trend view on USD/JPY.

- Japan's labor force participation rate has been trending higher while the jobless rate has been falling in tandem for 3 years now.

-EURUSD finally managed to break free last week from the consolidation that had persisted since early December 2015. I mentioned Wednesday’s break of confluent resistance, noting that the bullish break exposed the next level of resistance at 1.1210. Sure enough, the pair found enough sellers at this level last Thursday to reverse prices heading into the weekend. However, Friday’s pullback looks fairly constructive, especially with prices holding above the 1.1058 handle. From here, a close above 1.1210 would expose former channel support that extends off of the 2015 low, while a move back below 1.1058 would expose recent highs near 1.10. At the moment, prices remain fairly extended from the mean, suggesting that we may see a return to 1.1058 before the next leg up can materialize. A pullback to this area combined with the right bullish price action could offer a favorable place to get long.

Major news for today: CAD Building Permits m/m, EUR Sentix Investor Confidence, JPY 30-y Bond Auction.