Sample Category Title

USD/CAD - 1.3698

 
Recent wave: Only wave v of c has ended at 0.9407 and wave C of major A-B-C correction is underway for headway to 1.4700

Trend:  Near term up

 
Original strategy       :

Buy at 1.3600, Target: 1.3750, Stop: 1.3540

Position: -

Target:  -

Stop: -

 
New strategy             :

Buy at 1.3540, Target: 1.3750, Stop: 1.3480

Position: -

Target:  -

Stop:-

As the greenback has finally retreated after rising to 1.3794, suggesting consolidation below this level would be seen and correction to 1.3645-50 is likely, however, reckon downside would be limited to 1.3600 and support at 1.3530 should hold, bring another rise later, above said resistance at 1.3794 would extend gain to 1.3840-50 but near term overbought condition should prevent sharp move beyond there and price should falter below 1.3890-00, risk from there is seen for a retreat to take place later. 

In view of this, would not chase this rise here and would be prudent to buy again on further subsequent pullback as 1.3530 support should limit downside. A firm break below this level would abort and signal a temporary top is formed instead, risk correction to 1.3500 and later towards 1.3450-60 but support at 1.3411 should remain intact, bring another upmove later.

To recap, wave B from 1.3066 is unfolding as an a-b-c and is sub-divided as a: 1.2192, b: 1.2716 and wave c is a 5-waver with i: 1.1983, ii: 1.2506, extended wave iii with minor iii at 1.0206, wave iv ended at 1.0781 and wave v as well as wave iii has ended at 0.9931, hence the subsequent choppy trading is the wave iv which is unfolding as (a)-(b)-(c) with (a) leg of iv ended at 1.0854, followed by (b) leg at 1.0108 and (c) leg as well as the wave iv ended at 1.0674. The wave v is sub-divided by minor wave (i): 0.9980, (ii): 1.0374, (iii): 0.9446, (iv): 0.9913 and (v) as well as v has possibly ended at 0.9407, therefore, consolidation with upside bias is seen for major correction, indicated target at 1.3700 and 1.4000 had been met and further gain to 1.4700 would be seen later.

Nonfarm employment bounced back from its weather-induced March slowdown. Payrolls added 211,000 jobs in April and the unemployment rate fell to 4.4 percent. Hours worked and hourly earnings also rose solidly.

A Solid Report

Nonfarm employment rose by 211,000 in April and the unemployment rate fell to 4.4 percent. Net revisions to prior months' data only deducted about 6,000 jobs, and the average gain for the past three months remains a solid 174,000 jobs. Job gains were fairly broad-based, with just over 60 percent of the industry groups surveyed by the BLS adding jobs in April. The overall quality of jobs being created improved, with a substantial acceleration in hiring for full-time positions and deceleration in part-time jobs.

The employment data through the first four months of this year have been significantly impacted by a number of seasonal influences. Unseasonably mild winter weather in the Northeast and Midwest allowed for construction activity to ramp up a little earlier than usual this year, leading to strong gains in construction jobs in January and February. With hiring rising earlier in the year, there was less of subsequent pick up this spring, leading to smaller-than-usual seasonally-adjusted gains in March and April.

The late Easter also wreaked havoc on employment data at retailers and in hospitality. Easter came at the end of the April survey week, which weighed on retail and hospitality employment in March and set the table for a strong bounce back in April, particularly in the hospitality sector, which added 55,000 jobs. About half the increase in hospitality jobs was in food services & drinking places. By contrast, retailers added just 6,000 jobs, reflecting store closings announced after this past year's disappointing holiday shopping season and the loss of market share to online retailers.

Average hourly earnings rose 0.3 percent in April and are now up 2.5 percent year-to-year. Hiring in higher-paying industries grew more modestly. Construction added just 5,000 jobs and manufacturers added 6,000 jobs. Hiring in mining & logging rose by 10,000 positions, reflecting increased oil production. Healthcare & social services, professional & business services and financial services all posted solid gains in April. While average hourly earnings rose only modestly, total hours worked rose by a stronger 0.5 percent in April. Taken together, the two gains should produce solid income growth in April and help drive a rebound in consumer spending during the second quarter.

The unemployment rate fell to 4.4 percent in April, as household employment outpaced labor force growth. The labor force participation rate fell slightly during the month but the participation rate for prime-working age workers actually increased. The broader U-6 measure of unemployment fell to 8.6 percent, which in part reflects the recent shift toward more fulltime jobs being created relative to part-time positions. The improved mix of jobs being created should pull more job seekers into the labor force. The acceleration in full-time positions is also consistent with the recent acceleration in household formations and homeownership.

Headlines

European equity markets eke out gains with the French CAC40 outperforming (+0.7%), anticipating a Macron victory. US stock markets open narrowly mixed after a decent, but close to consensus, payrolls report.

Net US job growth increased by 211k in April, slightly beating 190k consensus. The previous two payrolls numbers were downwardly revised by a combined 6k. The unemployment rate unexpectedly declined from 4.5% to 4.4%, matching the cycle low from 2006-2007. Wage growth disappointed though, slowing from 2.6% Y/Y to 2.5% Y/Y.

Centrist French presidential candidate Macron extended his lead in the polls over his far-right rival Le Pen to 62% on the final day of a tumultuous election campaign that has turned the country's politics upside down.

The Czech PM Sobotka has made a U-turn on his decision earlier this week to resign along with his government, saying he now aims only to dismiss his billionaire FM and political rival, Babis. Friday's change of heart came after Sobotka met Czech president Zeman, who declined to accept the resignation of the entire government but only that of the PM.

Brent crude recovered today from a sudden 3% fall in Asian trade and following a week of steep losses globally as investors continue to worry about brimming crude inventories.

Rates

Commodity panic premature; payrolls non-event

What promised to be an exciting trading day, turned out to be a dull session on bond markets. Asian commodity-related panic proved premature and US payrolls printed too close to consensus. At the time of writing, the US yield curve flattens with yield changes ranging between +1.6 bps (2-yr) and -1.3 bps (30-yr). The German yield curve shifts 0.3 bps (2-yr) to 1.1 bp (10-yr) higher. On intra-EMU bond markets, 10-yr yield spread changes versus Germany are unchanged apart from Spain (-5 bps), Italy (-8 bps) and Greece (-11 bps). Greek PM Tsipras told lawmakers to approve the deal reached earlier this week with international creditors. Greek parliament votes on the additional reform package on May 17.

The overnight panic on Asian markets because of significant weakness in oil and other commodity prices didn't persist in European/US trading. Brent crude recovered, rising from a $46.6/barrel low to $48/5 barrel, but remains below key $50/barrel support. The US Note future erased Asian gains around the European opening and the Bund opened neutral. What followed was one stretched yawn into the payrolls with European assets slightly favoured above US ones as centrist French presidential candidate Macron extended his lead over Le Pen on the final campaign day. US payrolls were strong, although the wage component disappointed. The US Note future spiked lower on the release, dipping below 125-04+/03+ support (previous cycle high/38% retracement), but soon rebounded higher as the wage component primed. Markets soon found a new equilibrium even if the Bund marginally underperformed the Note future.

Currencies

Solid payrolls don't help USD. EUR/USD holds near 1.10

The dollar was in the defensive in Asia this morning, but found a bottom in Europe as European markets were only modestly affected by the decline in commodities and the equity correction in Asia. The US payrolls report was solid, but it was not strong enough to inspire a genuine dollar rebound. USD/JPY trades in the 112.50 area. EUR/USD holds within reach of the 1.10 level, but a real test didn't occur yet.

The ongoing decline in commodities weighed on Asian equities overnight. The risk-off correction supported the yen even as Japanese markets were closed. USD/JPY dropped to the low 112 area. The decline in commodities also kept the Aussie dollar (AUD/USD <0.74) and the Canadian dollar (USD/CAD >1.3775) under pressure. With the dollar and commodity currencies in the defensive, the euro was 'by default' outperformer. EUR/USD traded in the high 1.09 area.

European equities were also modestly affected by the risk-off/commodity correction in Asia, but the damage could have been much worse (loss of about 0.5%). The decline in commodities clearly didn't trigger a broad based risk-off correction. Core bond yields also hardly declined. The easing of tensions put a floor for USD/JPY and for the dollar in general. USD/JPY found an intraday bottom in the 112.10 area early in Europe and rebounded slightly going into the payrolls. The dollar also regained some ground against the euro. EUR/USD settled in the 1.0955/80 area.

The US payrolls were OK. Job growth printed at 211K. (190K consensus). Other indictors of the report were a bit mixed. The unemployment rate unexpectedly declined from 4.5% to 4.4%. At the same time, wage growth was slightly disappointing at 0.3% M/M and 2.5% Y/Y. Over the previous days, USD sentiment was a bit fragile. So, the odds were that the dollar needed very strong data or other good news to gain ground. The initial reaction to the payrolls confirms this pattern. After an initial hesitation, USD/JPY settled in the mid 112 area. EUR/USD returned to the high 1.09 area, but a real test of 1.10 didn't occur yet. The pair trades currently in the 1.0975/80 area. So, the feeling of a fragile USD sentiment persists. At the same time, the euro remains in good shape going into the second round of the French presidential elections.

Sterling resilient against a strong euro

There was no high profile UK news with impact on sterling today. The conservative party made good progress in local elections, indicating that PM May's call for early elections will probably give her a comfortable majority at the start of the Brexit negotiations. As was often the case of late, sterling's reaction was very modest, at best. Cable holds near the recent highs which maybe suggests a slightly positive impact on sterling. The soft reaction of the dollar after the payrolls also supports cable. The pair trades currently near 1.2950. EUR/GBP trades slightly off this morning's top. The pair is trading in the 0.8485 area. So sterling holds up well against a strong euro.

Market movers ahead

• We expect a rebound in US CPI inflation after the sharp fall in the March inflation print.
• German GDP growth for Q1 is likely to mirror the relatively strong euro area growth.
• We expect the Bank of England to keep rates unchanged but believe focus will be on its policy stance on Thursday.
• We expect Chinese inflation pressure to continue to be muted.
• In Scandinavia, focus is set to be on inflation prints and, for Sweden, the minutes of the last Riksbank meeting.

Global macro and market themes

• Political risks are fading in Europe with Emmanuel Macron likely to become the next president of France.
• Economic momentum looks strong in the euro area.
• However, PMI indicators are pointing to a softening of the economic cycles in the US and China.
• Chinese financial markets are seeing increasing stress and commodity prices have also come under pressure.
• The impact on equity prices of a softer global business cycle is likely to be offset by strong earnings growth.

Full Report in PDF

Highlights:

• April payroll employment rose a stronger-than-expected 211K returning to a pace of increase evident in the first two months of the year and indicative that the March moderation to 79K was an anomaly.
• The recovery in employment was most evident in private sector, service-producing jobs where hiring jumped to 173K from 54K in March. Goods-producing jobs rose 21K in April which was down slightly from the 23K increase recorded the previous month while government employment rose to 17K from 2K over the same period.
• The separate household survey indicated a further unexpected drop in the unemployment rate to 4.4% from the 4.5% recorded in March and 4.7% in February. Market expectations had been for the April rate to retrace one-half of the March drop.
• Average hourly earnings, the main wage measure in the report, rose an expected 0.3% though this did not prevent the year-over-year rate moderating slightly to 2.5% from 2.6% in March and a Q1 average of 2.7%. Despite the moderation, the data is indicative workers continuing to enjoy real wage gains.

Our Take:

The rise in April payroll employment provides some evidence that the weakness in March where the employment gain dropped to 79K was an anomaly and that businesses confidence remains robust to take on more workers. The wage increase did moderate slightly in April but is still indicative of real wage gains. This continued support to household incomes should contribute to Q2 consumer spending growth, and overall Q2 GDP growth, rebounding to an above-average rate after a disappointing first quarter increase. The FOMC statement this week characterized "the slowing in growth during the first quarter as likely to be transitory" and would likely view today's employment report as offering support to this claim. Our forecast assumes that the Fed will continue to tighten policy with the fed funds range rising by a cumulative 50 basis points before the end of the year. However, this is contingent upon the upcoming expenditure data confirming a rebound in growth. Our forecast assumes that annualized GDP growth picks up to 2.9% from the 0.7% rise recorded in Q1 with above-average growth being maintained through the end of next year

Highlights:

• Employment rose 3k in April and the unemployment rate declined to 6.5%.
• The increase in hiring was led by a 34k jump in part-time employment offsetting a 31k drop in full-time employment. It remains the case that most jobs created over the last year have been full-time.
• The labour force participation rate ticked lower (65.6% versus 65.9% in March). The rate for prime-aged 25-54 year old workers also ticked lower but was still up 0.4 ppts from a year ago.
• Hours worked were up 1.1% from a year ago, up from 0.7% in March and the strongest increase since November 2016.

Our Take:

The headline employment gain was modest in April (a negligible 3k in a monthly survey with very wide confidence bands around spot monthly estimates); however, the tick higher is nonetheless notable in that it continues an unusual streak of positive monthly readings. Employment has now increased in 15 of the last 17 months with growth over the last year averaging a solid 23k per month. The details of the monthly report for April were mixed (with a sharp pull-back in full-time jobs offset by stronger part-time employment) but, on average, more than two-thirds of job gains over the last year have been of the full-time variety. A drop in the number of people participating in labour markets was largely responsible for a drop in the unemployment rate to a new cycle-low at 6.5% in April; however, participation of 'prime-aged' 25-54 year-old workers ticked only modestly lower from record levels in March and was still up 0.4 percentage points from a year ago.

The fly in the ointment continues to be weak wage growth with year-over-year growth in average hourly earnings for permanent employees slipping to its lowest level on record (again) in April at 0.5%. The weak wage growth is in sharp contrast to what would otherwise appear to be a labour market with little or no slack remaining. To be sure, other measures of wages have been stronger (wage growth in the alternative 'SEPH' employment survey was 2.4% year-over-year in February) but weaker numbers today from a wage perspective will likely continue to worry the Bank of Canada.

Canada's hot streak of job creation faded in April, with only 3.2k jobs added on the month. Despite the modest uptick in employment, the unemployment rate fell by 0.2 percentage points to 6.5% - the lowest level since October 2008 - as 45.5k left the labour force.

Full-time employment declined 31.2k after four months of strong gains, with part-time gains more than offsetting, up 34.3k on net.

Public sector hiring surged, up 35.2k while private sector saw large declines of 50.5k, erasing nearly all of the gains seen this year and breaking the seven-month trend of private sector outperformance. The rise in self-employment continued, matching last months gain, up 18.5k positions on net.

Goods-producing sectors continued to rebound, albeit at a much slower pace, adding 4.3k on the month. Agriculture (+4.3k) and natural resources (+1.4k) were the outperformers, while construction hiring slowed to just 600 jobs. Both manufacturing (-600) and utilities (-1.5k) saw declines. Service sectoring hiring was little changed, dropping 1k, as declines in business support (-18.7k), accommodation & food (-12.3k), and trade (-8.8k) more than offset the gains in education (+19.3k), health care (+12.4k) and transport (+8.8k).

British Columbia took the top spot this month, adding 11.3k positions, with Newfoundland & Labrador (+1.9k) and P.E.I. (+800) rounding out the only provincial gainers. The remainder of the provinces lost jobs on the month, with Quebec (-3.8k), Saskatchewan (-2.2k) and New Brunswick (-2.0k) showing the largest net losses.

Hours worked continued to accelerate to 1.1% y/y in April from 0.7% y/y in the previous month. On the other hand, hourly wages continued to weaken, up just 0.5% y/y - or just half of its first-quarter pace.

Key Implications

This was not a great employment report. After several months of strong gains the Canadian job machine slowed in April, coming in well below expectations for a 10k increase. The details were even less encouraging, with all of the gains coming from part-time jobs. Moreover, the unemployment rate, while at its lowest level in nine years, declined for the 'wrong' reason as people left the labour force and participation rate declined to its lowest level since the summer of 2016.

While the goods-sector hiring was welcome, it came solely from small and volatile agriculture sector, while the remainder of goods producing industries seeing little change. Moreover, service-sector weakness continued for the second straight month with education & health coming to the rescue as many others cut jobs. Wage data was also discouraging, given the mix of job creation concentrated in part-time positions, with the pace of wage gains decelerating to its slowest pace on record.

Despite the decline in unemployment, this report is unlikely to encourage the BoC to change its dovish tone on the outlook for the economy and Canadian monetary policy. In particular, the soft wage data will underscore the likely cool-off in consumption over the medium-term. At the same time, the poor showing in manufacturing underscores the rising uncertainty about Canada's trade relationship with its largest trading partner, and may delay the rotation of growth towards exports.

USD/CHF - 0.9890

New strategy  :

Stand aside

Position : -

Target :  -

Stop : -

Yesterday’s selloff after meeting renewed selling interest at 0.9957 together with the breach of support at 0.9891-93 confirm recent decline from 1.0108 top has resumed and bearishness remains for further weakness to support at 0.9831 and possibly towards 0.9800, however, near term oversold condition should prevent sharp fall below 0.9770, risk from there is seen for a rebound later.

In view of this, would not chase this fall here and would be prudent to stand aside in the meantime. Above the Kijun-Sen (now at 0.9908) would bring recovery to 0.9925-30 but price should falter well below said resistance at 0.9957, bring another decline later. Only break of 0.9966-69 resistance would signal low is formed instead, bring subsequent bounce to 1.0000-08 later.

GBP/USD - 1.2944

Original strategy :

Buy at 1.2865, Target: 1.2965, Stop: 1.2830

Position : -

Target :  -

Stop : -

New strategy  :

Buy at 1.2885, Target: 1.2985, Stop: 1.2850

Position : -

Target :  -

Stop : -

As cable has staged a strong rebound after finding support at 1.2831 yesterday, signaling the pullback from 1.2965 has ended at 1.2831, bring retest of 1.2965, once this level is penetrated, this would confirm recent upmove has resumed and extend further gain to 1.2990-00 (1.236 times projection of 1.2109-1.2616 measuring from 1.2365 and psychological resistance), then towards 1.3040-50 which is likely to hold from here. 

In view of this, would not chase this rise here and would be prudent to buy cable on pullback as 1.2880-85 should limit downside and bring another rise later. Only break of said support at 1.0831 would abort and signal a temporary top has been formed, bring retracement of recent upmove to 1.2790-95 (38.2% Fibonacci retracement of 1.2515-1.2965) but support at 1.2740-50 (50% Fibonacci retracement) should hold.

EUR/USD - 1.0974

Original strategy  :

Buy at 1.0920, Target: 1.1020, Stop: 1.0885

Position : -

Target :  -

Stop : -

New strategy  :

Buy at 1.0920, Target: 1.1020, Stop: 1.0885

Position : -

Target :  -

Stop : -

Euro finally broke above indicated resistance at 1.0951 (last week’s high), confirming our view that recent upmove from 1.0340 low has resumed and bullishness remains for this move to extend further gain to 1.1000, then towards 1.1025 (50% projection of 1.0602-1.0951 measuring from 1.0851) but reckon upside would be limited to 1.0050-60, risk from there is seen for a retreat later.

In view of this, would not chase this move here and would be prudent to buy euro on subsequent pullback as 1.0915-20 should limit downside. Only below support at 1.0875 (yesterday’s low) would abort and signal top is formed instead, bring correction to support at 1.0851 but price should stay above 1.0821 support, bring another rise later.