Fed signals pause, Dollar falls, long bets unwound

Stocks rally, yields ease, welcome to payrolls Friday

Summary

The US Dollar fell as speculative long bets were unwound ahead of today’s US Payrolls report. Fed speakers, led by Philadelphia President and FOMC member Harker, said that the US central bank should “skip” a June rate hike. Risk appetite rose, boosting stocks.

A popular gauge of the Greenback’s value against a basket of 6 major currencies, the Dollar Index (DXY) tumbled 0.64% to 103.56 (104.20 yesterday). Risk currencies led by the Aussie Dollar soared.

The AUD/USD pair jumped to 0.6573 from 0.6497 yesterday aided by stellar Chinese Caixin Manufacturing PMI data. Factory activity in China jumped to 50.9, up from a previous 49.5. New Zealand’s Kiwi (NZD/USD) soared 0.78% to 0.6870 against 0.6010 yesterday.

In the majors, the Euro (EUR/USD) rallied to 1.0761 against 1.0689 despite a surprise fall in German Retail Sales. The British Pound (GBP/USD) gained 0.65% to 1.2527 (1.2443 yesterday).

Against the Japanese Yen, the Greenback dipped 0.24% to 138.81 (135.26). The Dollar finished lower against the Asian and Emerging Market Currencies. USD/SGD (Dollar-Singapore) slid to 1.3470 from 1.3522. The USD/CNH (Dollar-Offshore Chinese Yuan) tumbled to 7.1045 (7.1205).

Other economic data released yesterday saw the Eurozone Annual CPI Flash Estimate plummet to 6.1% from 7% previously, and lower than estimates at 6.3%. Core CPI fell to 5.3% from 5.6%.

The US ADP Private Sectors Employment increased by 278,000 jobs, beating median estimates at 173,000 but lower than the previous 291,000. US ISM Manufacturing PMI dipped to 46.9 from 47.1.

US ISM Manufacturing Prices though tumbled to 44.2 from 53.2, and estimates at 52.4. Construction Spending in April rose by 1.2%, bettering forecasts at 0.2% and 0.3% previously.

Wall Street stocks rallied. The DOW rose 0.65% to 33,080 at the close, up from yesterday’s 32,875. The S&P 500 soared to 4,225 against 4,180 yesterday. Japan’s Nikkei climbed to 31,395 (31,095).

• AUD/USD – The Aussie Battler saw a roller coaster ride overnight, slipping initially to 0.6485 before rallying in earnest. In familiar choppy trade, the AUD/USD pair jumped to an overnight high at 0.6582. At the close of trade in New York, the AUD/USD settled at 0.6573.

• USD/JPY – The Greenback initially rocketed to an overnight peak at 139.95 before tumbling to close at 138.81 in New York. Speculative long Dollar bets against the Japanese currency were unwound late in the day.

• EUR/USD – The shared currency rallied against the Greenback (EUR/USD) to 1.0761 from yesterday’s 1.0689. In volatile trade, the overnight low traded was at 1.0662 while the high recorded was at 1.0768 as shorts scrambled to cover their positions.

• GBP/USD – Sterling soared against the US Dollar to 1.2527 at the close of trade in New York, up from its opening yesterday at 1.2442. There were no major economic data releases from the UK. The British currency benefitted from the broadly based weaker US Dollar.

On the lookout

Welcome to Payrolls Friday. It’s all about the US Non-Farms Payrolls which is released later today (Sydney, 10.30 pm). The US economy is expected to have created 190,000 Jobs in May from April’s 253,000 (ACY Finlogix). Prior to this release, New Zealand kicked off today’s light calendar with its Q1 Overseas Trade Index which fell -1.5% down from a previous 1.5%, matching estimates at -1.5%. Australia follows next with its April Home Loans (m/m f/c 3% from 3.7% previously – ACY Finlogix). France releases its April Industrial Output report (m/m f/c 0.3% from -1.1% - ACY Finlogix). The US rounds up today’s reports with its May Non-Farms Payrolls report (see above for estimates). The US Unemployment Rate for May is forecast to climb to 3.5% from April’s 3.4%. Average Hourly Earnings (Wages) are forecast to dip to 0.3% from 0.5%.

Trading perspective

It’s all about the US Payrolls report today. Median expectations are for a Payrolls rise of 190,000 to 193,000. A number above 200,000 could see a decent bounce in the US Dollar against it Rivals before settling. Any Payrolls number under 185,000 or lower would be considered weak, and markets will see more USD long bets being unwound. Watch for the Wages (Average Hourly Earnings) data as well. Wages are forecast to have dipped 0.3% from 0.5%. Any Wages number lower than 0.3% will put pressure on the Greenback. Fed speak will also be key. Rhetoric has been to “skip” a June rate increase. More of this kind of talk would pressurize the US currency.

• EUR/USD – The shared currency gained 0.63% against the Greenback settling at 1.0761 at the close of trade in New York. On the day, look for immediate resistance at 1.0770 (overnight high traded was 1.0768). The next resistance level is found at 1.0800 and 1.0830. Immediate support lies at 1.0730, 1.0700 and 1.0670. Look for more choppy trading in a likely range today of 1.0670-1.0780. Trade the range until the US Payrolls report is released.

• AUD/USD – The Aussie Battler soared 1.04% higher to finish at 0.6573 (0.6497). Improved risk appetite and broad-based US Dollar weakness boosted the Aussie. On the day, look for immediate resistance at 0.6600 and 0.6630 to cap further rallies. Immediate support can be found at 0.6540, 0.6510 and 0.6470. Look for another roller coaster ride in the Aussie, likely range: 0.6490-0.6590. Prefer to sell into any large AUD/USD spikes.

• USD/JPY – Against the Japanese Yen, the Greenback’s retreat was modest, settling at 138.82 against yesterday’s 139.25. In choppy trade of its own, the overnight high traded was at 139.95 while the overnight low recorded was 138.43. On the day, look for immediate support at 138.50 and 138.20 to hold any aggressive selling. Immediate resistance can be found at 139.10, 139.40 and 139.70. A weak Payrolls report could see 138 tested while a strong number could see 140. Get ready to rumble in this currency pair.

• GBP/USD – Sterling rallied against the broadly based weaker US Dollar to 1.2527 (1.2443). On the day, look for immediate resistance at 1.2540, which was the overnight high. The next resistance lies at 1.2580 followed by 1,2610. Immediate support can be found at 1.2490, 1.2460 and 1.2430. Expect the British Pound to trade a likely range today of 1.2440-1.2540. Just trade the range shag on this puppy today, expect another roller coaster ride in Sterling.

Put those tin helmets on, and let’s get ready to rumble! Happy Friday and trading all. A top weekend as well.