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Outlook: The big story today is supposed to be nonfarm payrolls, with critics already saying a low number will encourage the Fed to back down. Morgan Stanley has a forecast of 475,000, higher participation, the unemployment rate at 3.5% and average hourly earnings up to 5.7% y/y. Bloomberg has a forecast of 380,000, almost 100,000 lower, and the same unemployment rate. The WSJ has 400,000 and the same unemployment rate. It was 431,000 in March, by the way. It looks like the unemployment rate is the thing to watch, along with average hourly earnings. We will soon be getting guesses about how high unemployment can go before the Fed feels the heat. Since we have surplus of jobs and a shortage of labor, that seems unlikely. If average hourly wages are up 5.7% but inflation is closer to 8%, what can draw the worker? It’s important to keep remembering that the Fed can do nothing about supply chain disruptions or the price of oil, both heavy influencers of input prices and hiring decisions, so we are not so sure even bad numbers will stay its hand—0and we don’t expect bad jobs numbers. About those those disruptions: The NY Fed updated the… Read More »It looks like the unemployment rate is the thing to watch, along with average hourly earnings

USD/JPY The USDJPY returned to bullish mode, after shallow pullback from new 20-year high found firm ground at 129 zone, contained by rising 10DMA and Fibo 23.6% of 121.27/131.24 upleg. Bulls are establishing above 130 level, but need weekly close above here to confirm bullish signal, after last week’s spike to 131.24 was short-lived and failed to register close above 130. Thursday’s rebound left a double-bottom and formed bullish engulfing pattern that underpins near-term action and adds to positive signals. However, traders remain cautious despite the dollar regained traction, awaiting fresh signals from the US labor report, while daily studies show weakening bullish momentum, which warns bulls may lose steam on renewed probe through 120 pivot. Near-term action is expected to keep bullish bias above rising 10DMA (129.42) with sustained break above 130.00 and 130.65 (Fibo 76.4% of 147.68/75.55) to open way for retest of new peak at 131.24 and unmask 2002 peak at 135.16. Res: 130.47; 130.65; 130.80; 131.24. Sup: 130.00; 129.42; 128.89; 128.62. Interested in USD/JPY technicals? Check out the key levels

Politics French President Emmanuel Macron defended his mandate in the second round of the presidential election with 58.55% of the vote. His opponent Marine Le Pen obtained 41.45%. Turnout was just under 72%. The liberal green Freedom Movement won the parliamentary elections in Slovenia with 34.3% of the vote. The Slovenian Democratic Party of incumbent Prime Minister Janez Jansa came in second with 23.8%. The ruling group has already acknowledged the defeat, and Jansa, who heads the government of the country with 2.1 million inhabitants, will soon finish his term. The Russian gas company Gazprom has completely stopped gas supplies to Poland and Bulgaria. It justified its decision by saying that local gas companies PGNiG and Bulgargaz refused to pay for gas in rubles, as Moscow demands. Projections for Europe without Russian gas point to a problem by the end of January 2023 (according to Bruegel). In the event of a complete supply shutdown, EU countries would have to reduce annual consumption by 10 to 15%. At that time, even record high supplies from other countries would not be enough and gas storage facilities in Europe would be emptied at the turn of January and February 2023. The European Central… Read More »EU news monthly May 2022

The euro rose against key currencies as investors focused on the widening gap between German and Italian bonds. The spread between the 10-year bonds of the two countries rose to 2.007%, which was its highest level since May 2020. This means that investors have a preference for safer German government bonds. It also signals that there are expectations that the European Central Bank will start hiking interest rates in its July meeting. The hawkish state of the ECB comes at a time when there are worries about stagflation in the region as inflation rises to over 7%. Global stocks continued crashing on Friday as the mood in the market deteriorated following the hawkish Federal Reserve decision. In the United States, futures tied to the Dow Jones declined by 170 points while those linked to the Nasdaq 100 fell by 150 points. The two indices declined by 1,100 and 600 points on Thursday. The same trend happened in Europe where the DAX, CAC, and Stoxx dropped by more than 1.50%. The worry is that major central banks like the Fed, BOE and the ECB will accelerate their tightening process soon. Also, while most companies have reported strong revenue growth, their margins… Read More »Euro spikes as German and Italian bond yields spread

GBP/CAD traded lower yesterday after the BoE hiked interest rates but warned over recession risks to the UK economy. The dip brought the rate below the 1.5925 barrier, marked by the low of April 28th, a move that confirmed a forthcoming lower low on both the 4-hour and daily charts. This, combined with the fact that we can draw a downside resistance line from the high of February 22nd, paints a positive near-term picture. Today, the rate rebounded somewhat after nearly hitting again support at 1.5775, and thus, we cannot rule out some further recovery, even back above 1.5925. However, as long as the pair stays below the aforementioned downside line, we will see decent chances for the bears to jump back into the action, perhaps from near the high of May 4th, at 1.6105. A possible slide from there could result in another test near the 1.5775 zone, the break of which would confirm another forthcoming lower low and perhaps set the stage for declines towards the low of August 1st, 2013, at 1.5583. Shifting attention to our short-term oscillators, we see that the RSI rebounded and exited its below-30 zone, while the MACD, although below both its zero… Read More »GBP/CAD extends its downtrend

EUR/NZD is trading in an ascending channel on the four-hour chart after the 50-exponential moving average crossed over the 200 EMA. Moreover, the positive slope of divergent moving averages indicates a strengthening bullish Momentum in the short term. In addition, the candlestick bars suggest that Euro buyers have taken control of the European morning trading session by accelerating upward bias. Currently, they are attempting to push the price towards the channel ceiling around 1.65 after defeating the 1.63980 resistance level. If this barrier can halt the rally, we may see a price consolidation for some time. With a sustained move above this level, the 1.65873 mark could come under the spotlight. Otherwise, if sellers take cues from the price at the ascending channel resistance, the pair could return to the support area between 1.63539 and 1.63980. If this area is broken, the probability of falling to the 50-EMA will increase. However, as long as the price floor of 1.60736 remains intact, the uptrend will continue. Short-term momentum oscillators indicate that buyers are dominating the market. The RSI is approaching 70 in the buying area. Despite falling from a three-day peak, the Momentum is still above the -100 line. Positive MACD… Read More »EUR/NZD bulls aim for ascending channel’s ceiling

1)    US CPI (Apr) – 11/05 – having seen the US Federal Reserve raise rates by 50bps this week, attention now turns to next month's expected 50bps rate rise, especially if US inflation shows little sign of slowing down when this week’s April numbers are released. This seems likely given Powell’s recent comments about inflation being too high. In March US CPI rose by 8.5%, slightly above expectations, while core prices rose by 6.5%, slightly below expectations, in a sign that inflation pressures could well be close to easing. These expectations proved to be short-lived after PPI in March rose to 11.2% and another record high while core prices rose to 9.2%. With ISM prices paid data still looking frothy, any signs of a peak in headline inflation still seems some way off, with US 10-year yields rising to 3%. This week’s CPI numbers could go some way to determining whether we’ve started to see a pause in inflationary pressures, or whether we get a further lift in inflation expectations. The Federal Reserve has already said it will go for successive 50bps rate hikes at the next two meetings, as well as announcing the process of balance sheet reduction,… Read More »The Week Ahead: US CPI, UK Q1 GDP, ITV, BT and Disney results

The Fed signaled that it will avoid shock-and-awe rate increases, putting more emphasis on avoiding a recession rather than vanquishing inflation. Another round of US inflation data is on tap next week and the Fed might finally get some good news, as the yearly CPI rate may have peaked. Is this the beginning of the end for the dollar’s supremacy? Maybe not. 

Europe European markets have ended the week very much on a downswing as yesterday’s big sell-off in the US has rippled over into today’s price action, pulling markets into negative territory for the week, with the DAX set to finish lower for the fifth week in a row. The FTSE 100 has also had a disappointing week, sliding to a one week low, with the energy sector saving it from a worse fate with both BP and Shell finishing the week very much on the front foot, after their strong numbers earlier this week. Rate hike talk has dominated this week, with the Fed raising rates by 50bps, with more to come, the Bank of England hiking rates by 25bps, and now several ECB officials have started raising the prospect of following suit in July, in comments made today in response to concerns over higher prices to help anchor future inflation expectations. These comments appear to have accelerated today’s weakness as the economic outlook starts to darken.    Today’s price action has been dominated by weakness in consumer discretionary on concerns over weak demand as higher prices prompt a decline in consumer spending. Travel and leisure have also been caught up in today’s weakness with IAG the worst faller on… Read More »ECB rate rise chatter sends markets into the red for the week

Summary United States: 'Til the Medicine Takes The latest economic data suggest supply challenges worsened in April. Delivery times lengthened, and while employers continued to add jobs at a solid pace, the supply of labor weakened. Price pressure has remained elevated as a result. The FOMC raised its federal funds rate 50 bps this week at the conclusion of its policy meeting, and the incoming data for April reinforce our expectation for another 50 bp hike in June. Next week: NFIB Small Business Optimism (Tues), CPI (Wed), U. of Mich. Consumer Sentiment (Fri) International: Reserve Bank of Australia Delivers Initial Rate Hike, BoE & BCB Continue Tightening Faced with concerns about high inflation, multiple central banks around the world tightened monetary policy this week. Notably, the Reserve Bank of Australia (RBA) raised its Cash Rate by 25 bps to 0.35%, citing a resilient economy with inflation that has accelerated faster and higher than previously expected, as well as progress toward full employment and wage growth. The Bank of England and Brazilian Central Bank also delivered rate hikes this week. Next week: Mexico CPI/Banxico Rate Decision (Mon/Thu), U.K. GDP (Thu), Russia CPI (Fri) Interest Rate Watch: The First 50 bps Rate… Read More »Weekly economic and financial commentary