Focus of the day:
"The week’s stand-out event for the FX market is the payrolls report on 8 May. Between March 2014 and February 2015, headline payrolls growth averaged 270K/month, with no observations below 200K. This stability at a high level meant that March 2015’s 126K outturn was a disappointment, especially given its 3 April release came so soon after the dovish FOMC outcome on 18 March.
But what if there is a second weak number? This poses more of a threat to the USD as presumably now economists will have the prototype of a new “trend” to contend with.
What does this mean ahead of Friday’ payrolls data? In our view it raises the potential for a negative outcome for the greenback – in the event of a number well below 200K without upward revisions to the previous month – more potent than what was seen in April.
What if US employment data come in strong? Given that US rates have been pushing higher of late anyway despite soft US data more broadly, the path of least resistance would arguably be for that to continue, perhaps violently if wages are also strong. This would have USD-bullish implications, especially against currencies that depend of relative carry for their well-being such as AUD, BRL and TRY..
For the record, Credit Suisse economists expect a 180K outcome with the unemployment rate nudging down to 5.4% from 5.5% previously – these outcomes would probably be worth only a modest negative USD reaction, especially if there are positive revisions to March data."
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