AUD hammered, RBA hints at further rate cuts…..NFP'S Day!

Good morning,

- Best/worst performers in majors vs USD today: JPY: 0.1%, EUR: 0.0%, GBP: 0.0%, CAD: -0.2%, NZD: -0.4%, AUD: -0.8%.

- Best/worst performers in Commodities today: XPDUSD: 0.5%, XAGUSD: 0.3%, USOil: -0.6%, UKOil: -0.6%.

- Fed's Lockhart says he doesn't support moving away from the Fed's current 2% inflation target.

- US April Employment Report .The US economy is expected to have added 205,000 new jobs in April – a solid gain and close to the average monthly gain seen during the past couple of years. The US unemployment rate is expected to remain unchanged at 5%. The rate of growth in wages has declined in the past couple of months, suggesting wage inflation is not an immediate threat. The increased participation rate has boosted the supply of labour and has a dampening effect on the inflationary pressures. The ADP employment report for April showed the private jobs increasing by 156,000, much lower than the median forecast of 196,000. Fortunately, past data shows that month-to-month variations between the two reports can be notable, so nothing is set in stone yet.

The CME Group’s FedWatch-tool shows that the futures-implied probability of a rate hike at the June’s meeting is currently only 9%. The probability for one new rate hike in 2016 stands at 38.6% and at just 11.3% for two hikes. That leaves almost a 50%-chance of no new hikes during the rest of the year…..After support at 1.14, the next proper support is around 1.12 – the April low. If the 1.14 support breaks, then support at 1.12 will probably lead to anticipatory purchases around 1.1250. The EURUSD rally from 1.05 levels following the European Central Bank's disappointing December 2015 meeting can be fitted into a rising trend channel. A visit to 1.1250 would keep the pair in that channel, and prevent it breaking the rising trend. Another solid gain in US jobs likely, leaving Fed confused…Nope. A solid report won't be enough to push the Fed to hike in June.

-The yen’s roller coaster ride coincides with the EURUSD moves. After the Bank of Japan unexpectedly left policy unchanged, the yen strengthened dramatically, and probably many of the JPY shorts that were closed were done against the US dollar. Thus, the yen strengthening created overall selling pressure on the US dollar. Both the USDJPY and the EURJPY have now reached the bottom of bearish trend channels, suggesting that for now the selling pressure is over and some modest recovery or at least stabilization could be expected. It seems that you need to watch multiple charts at the moment for clues regarding impending short-term gyrations. For the EURUSD, rumors about the BoJ's intentions could be even more important than the US and European data flows.

- Fed's Williams says they must ask whether the inflation goal is the correct strategy for the future. Fed's Williams says he is looking forward to a time when rates are well away from the zero bound

- The Australian Dollar has fallen sharp following the release of the RBA Quarterly Statement on Monetary Policy, in which the doors were left wide open for further rate cuts. Market makers pulled the liquidity aggressively right after the event, while algo bids helped lift the offer, after the RBA cut the inflation outlook for 2016 to 1-2% from 2-3% previously, which is a more drastic move than expected by most market economists. The Australian 10-year bond yield has come under strong pressure in response to the RBA SoMP release, with the odds of additional rate cuts this year now increasing. The risk-off environment has also returned post RBA, as reflected by the uptick in the VIX and lower US 30-Year US Treasury yields. At the same time, the Nikkei 225 has now erased all its early gains, to currently trade at -0.8%.

-EUR/USD: Shift from bullish to neutral: Pull-back has room to extend lower to 1.1300. We highlighted the rapid loss of momentum in recent updates and the break below 1.1400 was not exactly surprising. The recent high of 1.1614 is the extent of the bullish phase and the outlook has shifted to neutral from here. That said, the pull-back from the top appears to have scope to extend lower to 1.1300 but at this stage, a sustained move below this level is not expected. Overall, this pair is expected to remain under pressure unless it can reclaim 1.1495. GBP/USD: Neutral: Corrective pull-back has scope to extend lower to 1.4400. AUD/USD: Bearish: To take partial profit at 0.7340. The 0.7410 target first indicated two days ago was met as AUD dropped sharply after RBA revised its inflation forecast lower. While we are still bearish on this pair, the recent sharp drop appears to be running ahead of itself and those who are short should consider taking partial profit near the major 0.7340 support. NZD/USD: Neutral: In a broad 0.6800/0.7000 range. We just shifted to a neutral stance yesterday and there is no change to the view. We continue to expect this pair to trade in a broad 0.6800/0.7000 range. USD/JPY:Neutral: In a 106.00/108.00 range now. We turned neutral USD yesterday and there is no change to the view. We continue to expect this pair to trade between 106.00 and 108.00 for now.

- China 1Q current account balance data is due sometime today (no time given). Previous quarter a $91.9 Bln surplus - biggest gap since 4Q'08

-$AUDUSD testing below support at 0.7450, confirmation of a break on a daily closing basis exposes 0.7331. #NFP threatens follow-through.

-Fed's Williams says concern over global issues have declined. Expects should have 'some' rate hikes this year. Says 2 or 3 is reasonable..

- Major news for today: US NFP’S day, US Consumer Credit Data, EZ Retail PMI.