Dollar Rallies on Strong Non-Farm Payroll Data, Can It Keep the Momentum?

Dollar jumps in early US session as lifted by a set of strong non-farm payroll data. But it remains to be seen if buying could sustain. Still, Canadian Dollar looks even stronger for its own robust employment data too. For now, Swiss Franc is the worst performer for the day, very much thanks to the reversal in cross against Euro. Yen is the second worst, followed by Euro. The Looking is the strongest one, followed by Aussie. Let’s see if the greenback to reclaim more of the ground lost earlier in the week.

Technically, USD/CHF is heading back to 0.8993 resistance quickly. Decisive break there will be a signal of near term bullish reversal, on bullish convergence condition in daily MACD, ahead of 0.8756 long term support (2020 low). That, if realized, could be an early sign of turn around in Dollar in general. In particular, Both EUR/USD and GBP/USD could follow with deeper pull back.

In Europe, at the time of writing, FTSE is up 0.48%. DAX is up 0.73%. CAC is up 0.66%. Germany 10-year yield is up 0.0105 at 2.295. Earlier in Asia, Japan was still on holiday. Hong Kong HSI rose 0.50%. China Shanghai SSE dropped -0.48%. Singapore Strait Times dropped -0.08%.

US NFP grew 253k, unemployment rate down to 3.4%, avg hour earnings up 0.5% mom

US non-farm payroll employment grew 253k in April, well above expectation of 181k. However, prior month’s growth figure was revised sharply down from 236k to 165k. That compared to the average monthly growth of 290k over the prior 6 months.

Unemployment rate dropped from 3.5% to 3.4%, below expectation of staying unchanged at 3.5%. Overall, unemployment rate has ranged from 3.4% to 3.7% since March 2022. Labor force participation rate was unchanged at 62.6%. Employment-population ratio was also unchanged at 60.4%.

Average hourly earnings grew strongly by 0.5% mom, above expectation of 0.3% mom. Over the past 12 months, average hourly earnings have increased by 4.4%.

Also released, Canada employment grew 41k or 0.2% mom in April, well above expectation of 21.6k. Part-time employment increased by 48k while full-time employment held steady. Unemployment rate was unchanged at 5.0%, holding steady at this level since December 2022. Unemployment rate was also near record low of 4.9% made in June and July 2022. On a year-over-year basis, average hourly wages rose 5.2%.

ECB SPF downgrades 2023 headline inflation forecasts, upgrades core

In ECB Survey of Professional Forecasters for Q2 2023, respondents downgraded their expectations for headline HICP inflation in 2023 downward. The lower headline inflation expectations are primarily attributed to expectations of reduced energy price inflation, particularly for natural gas. Headline inflation expectations for 2023, 2024, and 2025 are now at 5.6%, 2.6%, and 2.2%, respectively, compared to Q1 forecasts of 5.9%, 2.7%, and 2.1%.

On the other hand, expectations for HICP inflation excluding food and energy in 2023 were revised upward, primarily results from recent data outturns and higher wage growth forecasts. Core inflation projections are at 4.9% in 2023, 2.8% in 2024, and 2.3% in 2025, comparing to prior forecasts of 4.4%, 2.8% and 2.3% respectively.

Real GDP growth is now projected at 1.2% in 2023, 1.6% in 2024, and 1.4% in 2025, compared to prior forecasts of 1.4%, 1.7%, and 1.4%.

Eurozone retail sales contracted -1.2% mom in Mar, EU down -1.1% mom

Eurozone retail sales volume contracted -1.2% mom in March, much worse than expectation of -0.2% mom. The volume of retail trade decreased by -1.4% mom for food, drinks and tobacco and by -1.1% mom for non-food products, while it increased by 1.6% mom for automotive fuels.

EU retail sales declined by -1.1% mom. Among Member States for which data are available, the largest monthly decreases in the total retail trade volume were registered in Latvia (-2.7%), Germany and Poland (both -2.4%) and Luxembourg (-1.9%). The highest increases were observed in Romania (+2.9%), Portugal (+2.3%) and Ireland (+1.0%).

Swiss CPI slowed to 2.6% yoy in Apr, core CPI unchanged at 2.2% yoy

Swiss CPI slowed from 2.9% yoy to 2.6% yoy in April, below expectation of 2.8% yoy. Core CPI (excluding fresh and seasonal products, energy and fuel) was unchanged at 2.2% yoy. Domestic prices edged down from 2.7% yoy to 2.6% yoy. Imported prices plunged from from 3.8% yoy to 2.4% yoy.

For the month, CPI was unchanged at 0.0% mom. Core CPI rose 0.2% mom. Domestic prices rose 0.2% while imported prices rose 0.2% mom.

RBA SoMP: Faster inflation slowdown in 2023, but not after

In the quarterly Statement on Monetary Policy, RBA reiterated that “some further tightening of monetary policy may be required” to ensure that inflation returns to target in a “reasonable timeframe”. But that will depend upon “how the economy and inflation evolve.”

The new economic projections show both headline and trimmed mean inflation slowing more rapidly in 2023. However, both measures are only expected to reach the top of target range by mid-2025. Additionally, the central bank downgraded its GDP growth forecasts for 2023 and predicts a higher unemployment rate. The evolving economic landscape will be key in determining the RBA’s future policy moves.

Year-average GDP growth forecast:

• 2023 at 1.75% (revised down from 2.25%).
• 2024 at 1.50% (unchanged).

Unemployment rate forecast:

• Dec 2023 at 4.00% (revised up from 3.75%).
• Dec 2024 at 4.50% (revised up from 4.25%).

Headline CPI forecast:

• Dec 2023 at 4.50% (revised down from 4.75%).
• Dec 2024 at 3.25% (unchanged).
• Jun 2025 at 3.00% (unchanged).

Trimmed mean CPI forecast:

• Dec 2023 at 4.00% (revised down from 4.25%).
• Dec 2024 at 3.00% (unchanged).
• Jun 2025 at 3.00% (unchanged).

China Caixin PMI services dropped to 56.4, remains to be seen if rebound sustainable

China’s Caixin PMI Services dropped to 56.4 in April, down from 57.8 in March and slightly below the expected 56.5. According to Caixin, the sector experienced slower yet still sharp increases in activity and new work, while input cost inflation accelerated to a one-year high. Employment growth slowed and backlogs continued to build, with the PMI Composite index falling from 54.5 to 53.6.

Wang Zhe, Senior Economist at Caixin Insight Group said: “In April, the services sector kept up momentum, while manufacturing activity turned comparatively sluggish and became a drag on economic growth. It remains to be seen if the economic rebound is sustainable after a short-term release of pent-up demand, with a number of indicators flagging that the recovery has yet to find a stable footing.”

GBP/USD Mid-Day Outlook

Daily Pivots: (S1) 1.2548; (P) 1.2573; (R1) 1.2598; More…

GBP/USD retreats notably after hitting 1.2633 and intraday bias is turned neutral first. Some consolidations could be seen but near term outlook will stay bullish as long as 1.2434 support holds. Break of 1.2633 will resume recent up trend to 1.2759 fibonacci level first. Firm break there will target 61.8% projection of 1.0351 to 1.2445 from 1.1801 at 1.3095.

In the bigger picture, the rise from 1.0351 medium term term bottom (2022 low) is in progress for 61.8% retracement of 1.4248 (2021 high) to 1.0351 at 1.2759. Sustained break there will add to the case of long term bullish trend reversal. Further break of 61.8% projection of 1.0351 to 1.2445 from 1.1801 at 1.3095 could prompt upside acceleration to 100% projection at 1.3895. For now, this will remain the favored case as long as 1.1801 support holds, even in case of deep pull back.

Economic Indicators Update