Yesterday the dollar continued to regain ground it lost earlier in the week and that rebound
has continued in early trade this morning as the GBPUSD edges backwards, close to 1.30
and the EURUSD slips towards 1.1150.
Earlier in the week the latest ADP private payroll report for April was way above the market
consensus at +275k which would indicate a strong number for today’s main payroll report at
1.30pm. However, this beat was surely more than offset by the latest ISM prices paid
component being much lower than forecast, along with evidence elsewhere from other
data, that there appears to indicate there is still no price pressure whatsoever in the
It was the previous evidence of this which led the dollar lower ahead of the Fed’s monetary
policy decision on Wednesday evening. Following that, the GBPUSD then lifted above 1.31
as the EURUSD touched 1.1265. This of course meant that the USD index really accelerated
to the downside after it fell back through the earlier upside breakout level at 97.71. Prior to
that the USD index had traded to as high as 98.33.
However, the subsequent breakdown below 97.71 forced a sell off to as low as 97.15 after
the FOMC policy decision on Wednesday. Granted that sell off clearly also had roots in
month end dollar sales the previous afternoon. Notwithstanding this though it was the Fed
boss, Jerome Powell who later came to the Dollar’s rescue after the Fed did as expected and
left all the main parts of their policy unchanged on Wednesday evening.
Powell basically made it clear to the markets (and the US president!) that monetary policy is
going nowhere at the moment, and in the FOMC’s opinion that there’s no compelling case
for them to act in either direction on rates for the foreseeable future. The crux for the
dollar’s rebound though was really Powell’s continued insistence that the current lack of
price pressure and benign inflation is entirely ‘transitory’.
Only time will tell on that I guess, but if nothing else at least the Fed boss did what he needs
to, and continue to deflect unhelpful criticism from the Commander in Chief.
So, it was really Powell’s comments that helped the dollar bounce back on Wednesday
evening and then build on those gains again yesterday. Indeed, the USD index is back above
that 97.71 level again as I write this morning, currently trading around 97.85.
Understandably, as to whether or not the dollar maintains that rebound could depend on
the outcome of the main April Jobs report later today.
Beyond the dollar, the commodity space is still under pressure with the AUD falling back
below 0.7000 today. That move was surely helped by WTI and gold both extending their
losses yesterday. Earlier in the week there was a call from a leading US bank player to buy
the AUDUSD at 0.7010, looking for a move towards 0.7400 with a stop loss set at 0.6900.
Right now I’d say the most valuable piece of information to gleamed from that
recommendation would be the level of the stop loss!
The pound is drifting a little lower today and once again probably falling foul of the stronger
dollar more than anything else. It was hardly the surprise of the week that the Old Lady left
interest rates on hold yesterday, with the MPC voting 9-0 to do so. Neither were the
warnings from Mark Carney that rates will have to rise after Brexit.
Irrespective of all that, the jury is still out on the Queen’s currency and it’s continuing to
look highly pivotal around 1.3000 versus the dollar, irrespective of the monthly close being
back above that level on Tuesday evening. The fact that EURUSD is falling again has much to
do with the GBPEUR, not only remaining above 1.1500, but also rebounding back above
1.1650 this morning.
Elsewhere today, the Asian equity markets (minus Japan which is still closed until next
week) have seemingly shrugged off what was a pretty negative set of closes on Wall Street
yesterday with S+P ending the session back below its 2941 breakout level. Earlier in the
week the lift through that point, but only to as high as 2954, is surely disappointing for
anyone looking for some decent upside acceleration? That does rather beg the question as
to whether or not that upside move was something of a false break, or ‘Bull trap’ for want
of a better expression?
Well, that’s a tricky question to answer particularly given the positive monthly close for the
index on Tuesday evening. However, my concern is that it might be the case, and I am
certainly not at all sure, especially when I cast an eye on those oil prices this morning with
WTI now off around 10% from its peak at the beginning of last week. So, as long as the
correlation between WTI and the S+P remains largely intact, then I am going to remain very
The other thing to consider here is whether or not a positive outcome to the China/US trade
talks is entirely priced in now? Increasingly I think it is and as I said before; what isn’t is a
more underwhelming result, or worse still something entirely less positive. Given the most
recent headlines on that front perhaps we might finally get some clarity sooner rather than
later and possibly even as early as next week?
Meantime, a little later on today, we shall see just how many jobs Uncle Sam created in
April and as usual the wages component of that report will be of equal, or possibly even of
more interest than the actual headline jobs numbers.
Ahead of this report the market consensus is for annualized wages in the US to be running
slightly higher than the previous estimate, at +3.3%, compared to +3.2%. My suggestion on
this would lead me to conclude that anything above 3.5% would surely endorse what the
Fed boss said earlier this week whereas anything sub 3.2% would rather tend to undermine
it. All will be revealed later today perhaps?
Important Economic Releases Due Today
03/05- 9.30am UK April Services PMI index
03/05- 10.00am Eurozone April CPI Inflation report
03/05- 1.30pm US April Unemployment Report