• NFP print shows strong jobs increase, weak earnings gains

  • Chinese reserves data release shows small drop

  • Bearish EURUSD case intact ahead of ECB meeting

Global Views

Friday's US jobs report was positive, but not positive enough to provide any clarity on the USD direction, as disappointment on the sudden dip in the Average Weekly Hours and a lower-than-expected rise in Average Hourly Earnings counteracted the very strong payrolls growth on both the establishment and household surveys.

The choppy reaction kept the EURUSD and USDJPY charts in limbo as commodity and emerging market currencies continued to steal the spotlight, a move doubtlessly correlated to the rise in oil prices and risk sentiment. Also, China has set its currency on the stronger side versus the US dollar as strengthening Asian and other currencies take the pressure off the yuan to fall further versus the major currencies.

Chinese reserves data were released this morning and showed a much smaller, approximately 30 billion yuan drop in reserves – somewhat less than expected and not a huge surprise given that the market inferred less pressure on the currency from China’s recent RRR cut.

The recent market environment has also likely eased the pressure on China’s currency, which has weakened notably versus other Asian and emerging market currencies even as it has been stable to stronger versus the US dollar.

The focus this week will turn increasingly to central banks as we have eight of the ten G10 central banks meeting from this Wednesday through next Thursday. The most highly anticipated of all of these is this Thursday’s European Central Bank meeting that will need to see ECB head Mario Draghi and company finding new rabbits in their policy hat if they want to shift sentiment and/or the currency decisively.

But the general question remains whether we have merely experienced a solid bounce from over-pessimistic sentiment levels, or whether we can claw our way back to full bull market status and put all of the turmoil of the beginning of the year behind us.

This is a tough read in the short term, but in the medium term the issues dogging market confidence have not been solved by a bounce in sentiment – merely suppressed.

Chart: EURUSD

EURUSD found resistance at the 38.2% Fibonacci level on Friday and just ahead of the 200-day moving average that was broken on the way down as the bearish case remains intact ahead of Thursday’s ECB meeting. But zooming out, bears will be reminded that the pair has been stuck in a range for a confidence-numbing 14 months.

EURUSD

The G10 rundown:

USD – The employment report was still more positive than negative, though the market focus is elsewhere at the moment and the greenback isn’t cutting much of a profile. The US data calendar is very light this week.

EUR – The euro should remain on the soft side as long as general market risk sentiment is positive as central bank policy guidance gains more traction in low-volatility conditions. As well, the ECB has likely taken the lesson of last December (don’t overpromise and underdeliver!) to heart coming into this week’s meeting.

JPY – The main USDJPY pair has gone painfully quiet as commodity currency and risk-on focus have kept the JPY on the weak side. At some point, one would think these conditions would prove more positive for the pair, particularly if the US rate outlook continues to improve.

GBP – Bank of England governor Mark Carney will be in the hot seat tomorrow talking Brexit. Watching EURGBP this week for whether we get confirmation of the recent bearish reversal with a breakdown through the 0.7700 area. GBPUSD, meanwhile, has so far found resistance at the important 1.4250 area.

CHF – EURCHF bouncing back to the interesting 1.0950 area and USDCHF is having a look at parity again. The latter is more interesting, perhaps, as current themes don’t favour the most negative yielding currencies.

AUD – Strong commodity resurgence is being felt most intensely here at the moment. The upside is getting a bit overdone in the near term, and let’s see how durable the commodity comeback proves in the weeks ahead. Longer term, we are sceptics on further AUDSUD strength, but the short term strength is undeniable and after some consolidation could extend to 0.7700 or higher.

CAD – If this oil comeback has legs, we could see USDCAD dipping further toward the structurally important 1.3000 area, though currently the focus is on the 200-day moving average near 1.3300. This MA hasn’t been crossed since September 2014. Bank of Canada up on Wednesday, with little at stake there as it is more about oil price momentum.

NZD – The kiwi is an underperformer in this environment as the commodity focus is less compelling for kiwi, and the currency has been undervalued for months against its large neighbor down under. Watching for AUDNZD upside and eventually NZDUSD downside on the other side of the RBNZ meeting, though it may be too early for the latter.

SEK – Stronger than the euro, but that’s not saying much as the SEK doesn’t deserve much attention in this environment. No major economic data this week from Sweden.

NOK – EURNOK has taken out the 9.40 support and the next focus could be all the way down at 9.10 if oil continues to rally. NOKSEK also deserves interest for a way to express NOK strength as the pair looks above parity this morning.

Economic Data Highlights

  • Australia Feb. AiG Performance of Construction Index out at 46.1 vs. 46.3 in Jan.

  • Germany Jan. Factory Orders out at -0.1% MoM and +1.1% YoY vs. -0.3%/0.0% expected, respectively and vs. -2.2% YoY in Dec.

Upcoming Economic Calendar Highlights (all times GMT)

  • Norway Jan. Industrial Product Manufacturing (0900)

  • UK BoE’s Haldane to Speak (0910)

  • US Fed’s Brainard to Speak (1700)

  • US Fed’s Fischer to Speak (1800)

  • US Jan. Consumer Credit (2000)

  • UK BoE’s Brazier to Speak (2000)

  • New Zealand Q4 Manufacturing Activity (2145)

  • Australia RBA’s Lowe to Speak (2320)

  • Japan Jan. Current Account Balance (2350)

  • Australia Feb. NAB Business Conditions/Confidence (0030)

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