- Higher, nonfarm payrolls rose by 290k, unemployment rate ticks up to 9.9%, stocks slide
- Higher, BOJ adds ¥2trln to the financial market, tracking stocks
- Higher, German upper parliament approves aid for Greece, G-7 to hold emergency conference call
- Lower, UK election results in a hung parliament, Conservatives gained less seats needed for majority
- AUD & CAD lower, RBA signals a pause, Canadian jobs growth surged
Overview
Volatile FX price action continues as investors fear the Greek debt crisis is becoming more serious and the response to the crisis has fallen short. EUR rebounded versus the USD and gained over 3% versus the JPY in early trade supported by report that the G-7 plans an emergency conference call to discuss the Greek debt crisis and the upper house of the German parliament approved a German aid bill for Greece. This has generated hope that the G-7 will take action to help stabilize the markets and Greece will shortly receive needed aid to avoid default. The impact of this news was limited as it's not clear what the G-7 could do to reduce investor fears. EUR turned lower in the US session. CHF traded higher supported by report of strong Swiss retail sales and a drop in Swiss unemployment rate. GBP traded lower pressured by report that the UK election resulted in a hung parliament. Investors fear that a hung parliament reduces the likelihood of quick action on the UK record budget deficit. Sovereign debt risk in the EU shines the light on sovereign debt risk in the UK. The commodity currencies were mixed with the CAD posting a sharp rally in reaction to report of a record monthly surge in Canada's employment growth. CAD gains were limited as US equities trade lower. AUD underperformed as equity markets remain under pressure and the RBA Monetary Policy Report for the April meeting confirms that the RBA sees interest rates near the average level. JPY opened lower as US equities recover and BOJ pumps liquidity into the financial markets. JPY turned higher as US trade as stocks weaken. US April nonfarm payrolls rose more than expected and the unemployment rate rose by 0.2%.The unemployment report is overshadowed by the Greek debt crisis.USD traded higher after the release of the April unemployment report. Investors are worried that the Greek debt crisis and weaker equities could hurt the recovery in US employment growth.
Today's US data:
April unemployment rose to 9.9%, a reading of 9.7 was expected. April nonfarm payrolls rose by 290k, a 190k rise was expected. March consumer credit will be released after this report is posted and is expected at -2.3bln.
Upcoming US data:
Next week's US economic includes the May 11th release of March wholesale inventories and sales. Inventories are expected to rise by 0.5% compared to 0.6% last month and wholesale sales are expected at 0.7% compared to 0.8% last month. On May 12th March trade balance will be released along with the April treasury budget. The trade balance is expected to widen to -40bln from -39.7bln last month. On May 13th April import prices and jobless claims for week ending 05/08 will be released. Import prices are expected to rise by 0.8% compared to 0.7%last month. Jobless claims are expected to fall to 438k from 444k last week. On May 14th April retail sales industrial production, capacity utilization and University of Michigan sentiment will be released along with March business inventories. Retail sales are expected to rise by 0.3% compared 1.6% last month. Industrial production is expected to rise by 0.5% compared to 0.1% last month. Capacity utilization is expected at 73.6 compared to 73.2 last month. Michigan consumer sentiment is expected at 73.2 compared to 72.2 last month. Business inventories are expected to rise by 0.3% compared to 0.5% last month.
JPY
After surging 5% versus the EUR and 4% versus the USD Thursday in reaction to the plunge in US equities JPY opened lower Friday. EUR/JPY initially traded 3% higher and the USD/JPY traded 1.5 % higher supported by a recovery in US equity markets, above expectation US nonfarm payrolls growth and hope that the G-7 may soon step in and help stabilize the financial markets. JPY was also pressured by report that the BOJ added ¥2 trillion in liquidity to the financial markets in reaction to the Greek debt crisis. Japanese officials downplayed the potential for joint intervention from the G-7 in the FX markets. This helped to limit downside selling pressure in the JPY.JPY tuned lower midsession as US equities sold off. The recent strength of the JPY may increase the risk of verbal intervention by Japanese officials. A Japanese government panel recently called for the BOJ set an inflation target and targets for the JPY. Stronger JPY contributes to deflationary pressures and could slow the recent rebound in Japan's export sales. JPY direction is expected to trade inversely to equities and risk sentiment.
Next week's Japanese economic calendar includes the May 9th release of BOJ policy minutes for the April meeting. On May 12th March leading indicators will be released expected at 1% compared to 1.2% last month. On May 13th March current account will be released expected at ¥2.15trln compared with ¥1.47trln last month. April money supply and bank lending will also be released on May 13th. Money supply is expected to rise by 0.1% compared to 0.2% last month and bank lending is expected to rise by 0.4% compared to 0.2% last month.
Key technical levels to watch in USD/JPY include support at 90.85 the May 7th low with resistance at 93.98 the May 6th high.
EUR
EUR rebounded from 14 month low versus the USD supported by hope the EU and G-7 officials take more aggressive action to contain the contagion risk from the Greek debt crisis. The recovery of the EUR was attributed to report that the upper house of the German parliament voted to approve aid for Greece. There have been reports that Germany may reject the aid plan for Greece. The EUR recovery was also attributed to report that the G-7 will hold an emergency press conference today. Investors hope this press conference could lead to G-7 action to try and help and stable the financial markets. The EUR recovery was short lived and EUR traded lower midsession. The Greek debt crisis is becoming more serious and a solution to the crisis will be difficult. It's not clear what it would take to calm the markets and help resolve the Greek debt crisis short of an aggressive type bailout like the US TARP program that was taken after the Lehman crisis. Some analyst's fear that if the Greek debt crisis is not contained it could become Europe's Lehman. So far the ECB has refrained from taking extraordinary action to combat the fallout from the Greek debt crisis. Some have called upon the ECB to buy sovereign debt to flood the markets with liquidity. Because Europe does not have a unified bond market it makes it difficult for the ECB to put together a bond buying program if it were to choose to take that route. In addition the ECB mandate is price stability not to support the economy. This may mean that the ECB does not have legal standing to take the type of action needed to support European financial markets. There are reports that the Eurogroup will meet tonight to discuss the Greek crisis. Hopefully a greater sense of urgency will emerge from this meeting. EUR remains vulnerable to fear of contagion debt risk in Europe.
Next week's EU economic includes the May 10th release of EU May Sentix index expected at 2.7 compared to 2.5 last month. On May 11th April German final CPI will be released expected unchanged at 0.5%. On the 12th EU Q1 GDP and industrial production for March will be released. GDP is expected to rise by 0.4% and industrial production is expected at 1.1% to 0.9% last month. On May 13th German Q1 GDP will be released expected at 0.3%.
The technical outlook for the EUR is negative as EUR breaks 1.2800. Expect EUR support at 1.2586 the May 7th low with resistance at 1.2857 the May 6th high.
GBP
GBP traded at a 13 month low versus the USD pressured by the UK election which resulted in a hung parliament. Reuters reports that the Conservatives secured the most votes but not enough seats to form a majority. The UK now must try and form a new coalition government. Investors fear that the lack of UK majority in parliament will make it less likely that the UK would take quick action to reduce its record budget deficit. With sovereign debt risk being the primary focus of all the markets this heightens fears that the AAA UK sovereign debt rating may be downgraded. The results of the UK election should not have been a surprise to the investment community and part of the weakness of the GBP may be attributable to the rise in risk aversion sparked by yesterday's plunge in US equities. Additionally, the GBP experienced a sharp selloff versus the EUR sparked by hope that the EU and G-7 will soon step into help and try to contain the fallout from the Greek debt crisis. The UK election results overshadow today's UK economic reports which showed that UK April output prices rose by 1.4%, input prices rose by 6% and April house prices declined by 0.1%. The head of the conservative party Cameron says that he will try to form a government with the Liberal Democrats. This could help reduce fears about the impact of the UK election on the outlook for the UK deficit.
Next week's UK economic includes the May 11th release of April BRC retail sales expected at 4.7% compared to 4.4% last month. UK March industrial production will also be released on May 11th expected at 1.2% compared to 1.1% last month. On May 12th March unemployment, average earnings claimant count will be released. On May 13th March trade will be released expected to widen to -7.2bln from -6.2bln in March.
The technical outlook for GBP is negative as GBP trades below 1.5000. Expect near-term support at 1.4475 the May 7th low with resistance at 1.5000.
CAD
CAD opened higher supported by report of a surprise surge in Canadian employment growth and an unexpected drop in the unemployment rate. Canada's is unemployment rate declined to 8.1% from 8.2%. Employment growth rose by a record monthly amount of 108.7K, a 25k rise was expected. Today's Canadian employment report confirms that the Canadian recovery is gaining momentum. Thursday Canada's finance Minister Flaherty said that the Canadian economy is strong. He also noted his concern about the impact of the European sovereign debt crisis. Today's strong Canadian employment report wound likely increase the odds of an earlier BOC rate hike if not for the uncertainty about the fallout from the Greek sovereign debt crisis. Thursday Canada reported a 12.2% surge in March building permits. The March building permits rise is additional confirmation of the strength of the Canadian recovery. The global markets are interrelated and sustained rally in the CAD rally will require stabilization of the global equity and commodity markets and confidence that the Greek debt crisis will be contained. CAD turned lower midsession tracking weaker US equities. CAD price direction to track equities and risks sentiment.
This week's Canadian economic calendar includes the May 10th release of April housing starts expected at 201.3 k compared to 197.3k last month. On May 12th March trade balance will be released expected at 1.7bln compared to 1.4bln last month along with March new housing price index expected at 0.3% compared to 0.1% last month. On May 14th March manufacturing shipments and new motor vehicle sales will be released. Manufacturing shipments are expected up 0.6% compared to 0.1% last month. Motor vehicle sales are expected to rise by 3% compared to 8.1% last month.
The technical outlook for CAD is negative as USD/CAD trades above 1.0500. Look for near-term support at 1.0338 the May 7th low with resistance at 1.0571 May 7th high.
AUD
AUD traded lower pressured by declining equity and commodity markets and in reaction to the release of the RBA Monetary Policy Report for the April meeting. AUD was pressured by rising risk aversion sparked by fears of debt contagion risk in Europe and slowing growth in China. Investors are liquidating holdings of stocks, commodities and high-yield currencies because of lack of confidence that EU officials can contain the spread of the Greek fiscal crisis. Deleveraging is the main focus of the AUD trade. AUD is also weakening in reaction to concern about slower growth in China and speculation that the RBA will pause its tightening cycle. China reported that manufacturing growth slowed in March. The RBA Monetary Policy report states that the RBA believes interest rates are near average level. This suggests that the RBA plans to soon pause in its rate hike cycle. Diminished RBA rate hike speculation is negative for the AUD. The RBA Monetary Policy statement also said that inflation pressures are rising faster than expected. This could mean that the RBA will still leave the door open for possible future rate hikes if inflationary pressures continue. AUD remains vulnerable to diminished RBA rate hike speculation and rising risk aversion.
Next week's Australian economic calendar includes the May 10th release of April ANZ job ads expected at 2% compared to 1.8% last month. On May 10th March housing finance will be released expected at -1% compared to-1.8% last month. On May 13th April employment growth and unemployment rate would be released. Employment growth is expected at 25k compared to 19.6 K. last month. The unemployment rate is expected to fall to 5.2% from 5.3% last month.
The technical outlook for the AUD is negative as the AUD breaks below 9000. Expect AUD support at 8709 the May 6th 1st low with resistance at 9095 the May 6th high.
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