ECB Quells Dovish Hopes, Euro Rises; Dollar Dips Into “Soft” Payrolls

Summary: The Euro strengthened after the ECB kept rates unchanged and signalled no interest rate moves until next year. Market hopes for a more dovish signal from ECB policymakers did not materialise. The single currency was 0.42% higher at 1.1275 (1.1222 yesterday) after trading to a 6-week high at 1.13089. The US Dollar eased against most of it’s rivals ahead of today’s US Payrolls report, where a soft outcome is expected. A fall in ADP Private-Sector Jobs to 27,000 (against forecast 180,000) in May, implied a downward revision to today’s Payrolls report. Sterling struggled for direction and closed little changed at 1.2695. The Dollar dipped against the Yen to 108.39 from 108.45 while the Aussie was flat at 0.6978 (0.6971). Canada’s Loonie outperformed as Brent Crude Oil prices surged 2.62% ($61.85). USD/CAD closed at 1.3365 from 1.3495 yesterday, 0.45% lower.

CNBC.Com US 2-Year Bond Yield Chart - 07 June 2019
CNBC.Com US 2-Year Bond Yield Chart – 07 June 2019

Wall Street stocks rallied amidst progress on US-Mexico immigration and trade negotiations. The DOW was 0.51% higher to 25,686 (25,475) while the SP 500 gained 0.36% to 2,838. Benchmark US 10-year bond yield steadied to 2.12% while the 2-year yield climbed to 1.88% (1.86%).
Euro-area data releases were mostly within expectations. US Challenger Job Cuts soared 85.9% from 10.9%.

  • EUR/USD – The single currency jumped to 1.13089 after the ECB left interest rates unchanged and refrained from hinting at an interest rate cut. Markers had anticipated a more dovish outcome. The Euro closed at 1.1275.
  • GBP/USD – Sterling ended little-changed for the second day running as the British currency searched for direction. The overall weaker US Dollar failed to lift the Pound weighed by an unknown outcome to the Conservative Party leadership contest to succeed former PM May. Sterling was last trading at 1.2695 (1.2690 yesterday).
  • USD/JPY – also little-changed, closed at 108.40 (108.45). The US 10-year bond yield was steady at 2.12% (2.13%). The Dollar rallied to 108.561 after finding a base at 108.025.

On the Lookout: Friday, Payrolls, that’s what it’s all about today. Median forecasts are for a “soft” Non-Farms Payrolls gain of +180,000 in May from April’s big +263,000 which offset February’s hiccup gain of +20,000. The US economy has been adding jobs above the 180,000-average consensus for the previous 8 months. The Jobless rate hit record lows at 3.6%. The positive trend may change with tomorrow’s May payrolls. The strong rise in US Challenger Job Cuts, released yesterday, could be a bad signal for the Unemployment Rate. Average Hourly Earnings (Wages) are forecast to have risen 0.3% from 0.2%. Get ready for some fireworks tonight!
Chinese markets are closed today in observance of its annual Dragon Boat Festival.
Japan reports its Average Cash Earning, Household Spending, and Leading Indicators. Australia’s May Home Loans report follows. Europe sees Swiss Unemployment Rate, German Industrial Production and Trade Balance, French Industrial Production, and Italian Retail Sales. The UK reports its Halifax House Price Index (May). Canada’ Employment Change, Jobless Rate precede the US Payrolls report.

Trading Perspective: With markets expecting a “soft” May Payrolls gain, the risk may be for a disappointment. A larger gain of 200,000 upwards should see the Dollar squeeze higher. A Payrolls gain of 150,000 or less will see a big sell-off in the Greenback before it settles down. Look to the Unemployment rate as well. Yesterday’s Challenger Job Cuts, although it has limited short-term correlation with overall labour conditions, could see a rise in the Jobless rate. Lastly market positioning is still overall long US bets. Let’s not lose sight of this.

  1. EUR/USD – The Euro rallied to an overnight and fresh 6-week high at 1.13089 before backing off to settle at 1.1275 in New York. EUR/USD has immediate resistance at 1.1310/20 followed by 1.1350. A bad Payrolls number of +150,000 or less could see a push toward strong resistance at 1.1380-1.1400. EUR/USD has immediate support at 1.1250 followed by 1.1220 and ten 1.1190. A good number of +200,00 upwards could see the 1.1200 level tested first. After the ECB signalled it has no intentions of any rate moves this year, the Euro’s base should hold. Look to trade a likely 1.1260-1.1320 range ahead of the numbers.
  2. USD/JPY – The Dollar found a short-term base against the Yen around the 108.00 area. US bond yields have steadied while US-Mexican immigration and trade talks are progressing despite no deal yet between the countries. Japanese corporations have buying interests at the 108 level. However, USD/JPY is constrained on the topside by an overall weaker US Dollar and expectations of a soft Payrolls tonight. The Dollar has immediate resistance at 108.60 followed by 109.00. Immediate support can be found at 108.10 and 107.80. A weak Payrolls number (+150,000 or less) should see 107.80 tested with the next support found at 107.20. A strong number (+200,000 or more) will see 109.00 tested, and higher. Where the US 10-year yield lands will also have an impact on this currency pair. Look to trade between 108.10-108.60 ahead of tonight’s US Payrolls.
  3. AUD/USD – The Aussie Battler has maintained its post-RBA rate cut levels mainly on the broad-based US Dollar weakness. AUD/USD traded in a relatively tight 0.69614-0.69942 range overnight. The Australian Dollar has immediate resistance at 0.7000 followed by 0.7030. Immediate support can be found at 0.6960 followed by 0.6920. It’s all about the US Payrolls for the Aussie tonight. A good Payrolls sees the Aussie test back to 0.6920 while a weak number will see 0.7030 tested, perhaps higher. Net Aussie short bets saw a slight increase in the latest COT/CFTC report. Look for a likely range today of 0.6960-0.7010 ahead of the Payrolls report.

Happy Friday and weekend all.