USD fails to hold gains after stronger US employment numbers

Good morning

A surprisingly high US nonfarms headline sent USD higher on Friday afternoon.  The headline of +303k was over 100k above expectations, while revisions to previous readings were small.  The unemployment rate ticked lower to 3.8% while average hourly earnings were unchanged at 4.1%.   GBPUSD traded from 1.2640 to 1.2575, EURUSD saw similar declines from 1.0850 to 1.0790 and it looked for an hour or two as though the US dollar would end the week on a firmer footing, particularly with the geopolitical risks looming over the weekend.

And then it all changed again.  By London close GBPUSD was back up to 1.2630 and EURUSD to 1.0840.  The move seemed to have been driven by a reduction in risk premium over the weekend, a surprising move but one that appears to have been borne out as Israel say they have moved all but one battalion out of southern Gaza and the two sides are in Egypt for more peace talks.  There is a glimmer of hope now although we do know the two sides are far apart in their demands.  Still, the movement of Israeli troops might be enough to put pressure on Hamas to a compromise of sorts.

The other safe haven currencies, CHF and JPY have also lost a little ground from their Friday highs.  EURCHF is now touching on 0.9800 while USDJPY is at 151.80, back near the key 152.00 area that some are suggesting may be a line in the sand for BoJ.  Oil prices opened lower, Brent is now below $90 having been near $92 Friday, WTI is in the mid $85s having been around $87.50 last week. 

The only ‘safe haven’ that hasn’t lost much ground is Gold.  It traded to $2,350 overnight and while it is off those highs at $2,335, it is still above last weeks levels.  Reports that China are continuing to add to their gold reserves is surely offering support to the metal, they now hold nearly 73million oz having purchased 160k oz last month.  I remember some years ago, 2010 I reckon, China rans ads on TV urging its citizens to buy gold, I wonder how many of them did so.   With gold prices then around $1,200, they’ll all be wishing they had done.  So do I. 

As a reminder though that the world remains in a dangerous place, there are reports that the Zaporizhzhia nuclear plant was hit by a drone attack with Russia accusing Ukraine of the attack, Ukraine of course denying any involvement. 

Todays calendar looks sparse and tomorrow’s is even lighter, however things hot up Wednesday with the release of the latest US CPI inflation numbers.  We are running out of time for the softening of data that is perhaps required to have a rate cut from the Fed by June.  That release is certainly the highlight of the week but we also have ECB, RBNZ and BoC rate announcements, german inflation, UK GDP and the US Michigan sentiment survey.  Could get interesting later in the week.

In other news, I have to say I feel a little sorry for a chap called Russ Cook, who has spent the last year raising money by running more than 10,000 miles, or approximately 385 marathons, from the southern-most point in South Africa to Tunisia in north Africa.  He has battled through sandstorms, illness, armed robbery, and many other life-threatening situations.  He has raised as admirable £700,000, anyone who raises that amount of month should be held in very high esteem, although I have to say that if I were him I’d be a bit disappointed to see Captain Tom raised £39m by walking round his garden.  I feel sorry that Mr Cook’s adventures did not receive more publicity which would have helped him raise a more appropriate sum of money.

In sport, Spurs have moved into fourth place in the premier league with a win over Forest.  All looking good until you look at Spurs seven remaining matches which includes all of the top three teams.  It’ll be a touch end to the season. Arsenal meanwhile moved top with a win against Brighton, while title rivals Liverpool could only manage a draw against Man Utd.  We’re going to get to a stage soon where Arsenal fans are going to find themselves cheering for Spurs!  Attention this week turns to European football with quarter finals of the Champions league starting Tuesday.

We were treated to some lovely warm, sunny weather over the weekend although it was a bit too blustery to feel too hot.  It gave us a reminder of what we are missing, and a peek at the forecast over the next couple of weeks suggests temperatures will still be lower than we’d like and there are still far too many raindrops on the coming days.  It has to get better at some point.  Maybe we’re just going to have a glorious summer!

Enjoy the day.  People on some parts of the world will be treated to a solar eclipse, it pretty much misses the UK although those in the West may see a tiny bit of moon moving over the sun.  For the rest of us we’re really just hoping for no rain.

-  16.15 SNBs Jordan speaks

-  23.00 NZ business confidence

-  00.00 Feds Kashkari speaks

-  00.01 UK BRC retail sales

-  01.30 AUS Westpac consumer confidence

Safe haven buying pushes JPY, CHF higher

Good morning

So I returned to my desk after a day or so of illness during which the market had a bit of activity, and it reverted yesterday to the usual rangebound, directionless trading that we’ve become used to these days.  GBPUSD is a smidge lower than it was this time yesterday, now 1.2625, EURUSD at 1.0835 is also just a touch lower.  The excitement I thought we may see during the Fed officials speaking failed to materialise, some hawkish comments from Kashkari who raised doubts as to whether we’d see any rate cuts in 2024 perhaps responsible for the slightly higher USD. 

USDJPY dipped below 151.00 overnight, it has since clawed its way up to 151.20 but comments on possible intervention has taken pressure off the upside for now.  FinMin Suzuki was out with the usual ‘we are watching FX closely, won’t rule out any options’, but it was comments from BoJ Gov Ueda that grabbed attention when he said that an excessively weak yen could impact interest rates decisions, raising the possibility of higher rates earlier than expected.  Former currency diplomat Yamazaki added to yen support when he suggested 152.00 would be something of a line in the sand for BoJ intervention.   

Attention is now well and truly turning to the US nonfarm payrolls data this afternoon.  A headline of +200k is expected which is down on the previous months reading of +275k.  A weaker reading could well see the US dollar under pressure and well worth watching for revisions to the previous months data, this is what spooked the mark most last time, which saw a revision from +353k to +229k, quite a substantial shift.  Of course, if the data is stronger the market could begin to doubt the chances of a June rate cut and USD could head higher.  Keep an eye on average hourly earnings and unemployment rate as well which came in at 4.1% 3.9% respectively last month.

Gold had broken through $2,300 on Wednesday night but couldn’t hold it and by the early hours of yesterday morning it was back below that level.  There is talk that Iran could be planning a large scale attack on Israel, in response no doubt to the recent Israeli attacks on Iranian officials in Syria.  The US exchange, CME, raised its margin requirements for gold which seems to have been responsible for a dip in gold prices overnight, it traded as low as $2,268 before recovering to $2,283.  

If Iran were to attack Israel, it would likely cause gold and oil prices to rally.  Oil has traded higher again, WTI rose to $87.00 and Brent is around $91.00.  Yen and CHF, as well as USD, have also historically been safe haven currencies so worth watching them if we do see any escalation in the middle east conflict.  CHF buying late Thursday that took EURCHF down from 0.9830 to 0.9760 came at the same time as the USDJPY dip and the jump in oil prices suggests the moves we have seen are indeed more down to safe haven buying than rate outlooks.

In sport, we were treated to a highly entertaining football match yesterday as Chelsea beat Man Utd 4-3 with two extremely late goals in a match which was turned on its head on a few occasions.  The result did Spurs a favour, keeping Man Utd nine points below Spurs, but has put Chelsea within touching distance of the European places.  If they win their game in hand they will be up to seventh and just two point behind Man Utd who currently sit in sixth place.  Liverpool regained the league top spot with a win over Sheffield Utd. 

The big match this is weekend looks like Man Utd v Liverpool, both teams with so much to play for.  Spurs take on Forest, I always have a bit of a soft spot for Forest but I’m afraid this time I’m hoping they lose comfortably which would boost Spurs chance of a Champions league spot. 

Have a great weekend when it comes.  If my forecast is correct this morning looks pretty ropey but it may dry out this afternoon and we may even be in for a brief spell of sunshine over the weekend which would be greatly appreciated.  Temperatures are still low mind you, but enough to get the grass growing, I’ve not ventured into the garden for a few days but will no doubt be surprised how long the grass is when I finally get the mower out again.

Until then, we have the nonfarms to watch and we hear from and several Fed officials, I would not be surprised to see them subtly pushing back on rate cut prospects, particularly if the US data is strong.  And of course we hope the fears of escalation in the middle east prove to be unfounded,   

-  10.00 EU retail sales

-  13.30 US nonfarm payrolls

-  13.30 CAD unemployment

-  13.30 Feds Collins speaks

-  14.15 Feds Barkin speaks

-  15.00 CAD Ivey PMI

-  16.00 Feds Logan speaks

-  17.15 Feds Bowman speaks

Softer US ISM sends USD lower, but watch comments from Fed officials

Good morning

I’ll begin by offering my apologies for the lack of report yesterday.  I seem to have a knack at the moment of picking up anything unpleasant going around, this time it was a 24-hour stomach bug which I have to say was hugely unpleasant and although I am vastly improved this morning, I’m still on the delicate side. 

So, what did I miss?  Well quite a lot by the look of it.  Tuesday morning I’d written that GBPUSD was down to 1.2540 and EURUSD to 1.0730, each are now over 100 pips higher at 1.2660 and 1.0850 respectively.  This bout of USD weakness comes despite a decent ADP number out of the States yesterday, instead the market paid more attention to the ISM services number which, although still above 50 and therefore indicating expansion, came in below expectations. 

In addition, Feds Powell was speaking, his comments also added to USD weakness, suggesting that rate cuts this year are still on the agenda, although I have to say I thought he did his best to warn rate cuts may not be seen as early as we hope, making it clear Fed will hold off cutting rates until there are clearer signs of lower inflation.  I think he is preparing us for the possibility that unless data between now and June is softer, they won’t be cutting rates.  The market seems to have overlooked this.  

We have a host of Fed officials speaking through the afternoon, my guess is they will all talk about potential for rate cuts this year but I will look for any signs that they are thinking June could be too early. 

We have the next round of US jobs data this afternoon, in the form of US challenger and initial jobless claims, ahead of tomorrows all-important nonfarm payrolls.   

USDJPY has failed to capitalise on US weakness, it remains stuck in the high 151’s.  Before yesterdays US ISM number it came within a couple of pips of 152.00 but did get dragged a little lower on the release.  Currently 151.70, support seems to be noted around the 151.50 area and of course 152.00 is capping the upside.  This leaves GBPJPY up at 192.15.

Gold prices meanwhile have certainly taken advantage of the USD weakness as well as rising geopolitical risks, trading briefly above $2,300 overnight and although it really was brief, we are currently sitting at $2,297, the pullback being rather shallow.  Oil prices have also benefitted from the geopolitical situation, US WTI hit $86.00 yesterday, while Brent traded to almost $90.00, both the highest levels since October last year which followed the terror attacks in Israel.

In sport, Arsenal have regained top spot in the Premier league with a win over Luton yesterday, Man City did both themselves and Spurs a favour in beating Aston Villa.  Arsenal’s reign could be short-lived, Liverpool can regain top spot with a win at Sheffield Utd this evening.  Meanwhile a win this evening for Chelsea over Man Utd would put them within touching distance of the European places.

That’s all for now, EU and UK PMIs up this morning, anything better than expected could see gains against USD continue.

-  09.00 EU services PMI

-  09.30 UK services PMI

-  10.00 EU PPI

-  12.30 ECB minutes

-  12.30 US challenger job cuts

-  13.30 US initial jobless claims

-  13.30 Feds Harker speaks

-  17.15 Feds Barkin speaks

-  17.45 Feds Goolsbee speaks

-  19.00 Feds Kashkari, Mester speak

-  00.30 Feds Kugler speaks

-  00.30 AUS trade balance