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The Greenback was explosively volatile during trading on Friday after March's mixed job report prompted investors to offload and reload Dollar positions in a fighting bid to be on the winning trade. Although the disappointing headline NFP figure was a tepid 98k in March, the jobless rate unexpectedly dropped to the lowest level in almost 10 years at 4.5%. With average earnings hitting the 0.2% expectations, it may be fair to say that the report was a mixed bag with a unique touch. The immediate market reaction has seen expectations rapidly diminish over the Federal Reserve raising rates in June with the probability dropping to 61%. Although the Dollar initially found itself exposed to downside shocks in the immediate aftermath of the release, prices have fully recovered with the Dollar Index trading towards 100.90 as of writing. While there is a possibility of the Dollar edging higher as bulls cheer the unexpected drop in unemployment rates, gains could be limited if the probability of the Federal Reserve hiking rates in June drops further. From a technical standpoint, a breakout above 101.00 on the Dollar Index could open a path higher towards 101.50.

USD/CHF - 1.0065

Original strategy :

Buy at 0.9950, Target: 1.0050, Stop: 0.9915

Position : -

Target :  -

Stop : -

New strategy  :

Buy at 0.9950, Target: 1.0050, Stop: 0.9915

Position : -

Target :  -

Stop : -

The greenback remained confined within near term established range and further sideways trading is in store before recent rise from last week’s low at 0.9813 resumes, above resistance at 1.0079 would extend further gain to previous resistance at 1.0109, however, loss of upward momentum should prevent sharp move beyond latter level and reckon 1.0140-50 would hold, risk from there has increased for a retreat to take place later. 

In view of this, would not chase this rise here and would be prudent to buy dollar on pullback as support at 0.9948 should limit downside. Below 0.9925-30 would abort and signal top is formed instead, bring correction to 0.9905-10 but reckon previous resistance at 0.9869 would hold from here. 

Market movers ahead

• In the US, the coming week brings CPI figures for March. We forecast CPI core increased 2.3% y/y while headline likely increased 2.8% y/y, i.e. we expect to see the acceleration in inflation turn into deceleration. Note that while these numbers are well above 2%, the Fed is more concerned about PCE core inflation, which is still below 2%.
• The coming weeks also bring a few speeches by FOMC members, where the focus is on the Fed's intention to start quantitative tightening soon, see FOMC minutes: Quantitative tightening is moving closer, 5 April.
• In the euro area, the Sentix investor confidence and German ZEW expectations are due out next week.
• In the UK, the most important data release next week is the CPI inflation data for March. We expect total CPI rose 0.4% m/m in March implying an unchanged inflation rate at 2.3%. We still expect CPI inflation to move higher this year and to peak around 3%. Despite higher inflation, the Bank of England will likely remain on hold through the Brexit negotiations, see also Bank of England Review: Maintains neutral stance with hawkish twist, 16 March.

Global macro and market themes

• Mounting signs that the global business cycle is peaking.
• We expect a pause in the equity bull market and that risk factors move back to the fore.
• We still expect the bond bear market is over for now.
• Fading reflation supportive for the USD. We expect short-term USD strength but weakening longer term.
• Positive start to Trump-Xi meeting - but differences on trade will come into focus in H2.

Full Report in PDF

GBP/USD - 1.2396

New strategy  :

Sell at 1.2450, Target: 1.2350, Stop: 1.2485

Position : -

Target :  -

Stop : -

As the British pound has dropped again and broke below indicated feel at 1.2400, adding credence to our view that rebound from 1.2377 has ended at 1.2559 and reset of this level would be seen, however, break there is needed to confirm early fall from 1.2616 has resumed for weakness to 1.2350, then towards 1.2325-30 but near term oversold condition should limit downside today and reckon 1.2300 would hold from here.

In view of this, would not chase this fall here and would be prudent to sell cable on recovery as 1.2450-60 should limit upside. Above 1.2480 would defer and suggest low is formed instead, risk test of resistance at 1.2506 first, break there would confirm, then a stronger rebound to 1.2525-30 would follow.

Non-farm payrolls increased by 98k in March, well below the consensus expectation of 180k. Downward revisions to the previous two months results in a cumulative 38k jobs vanishing from the statistics, but leaves job gains above 200k in both months.

Private payrolls rose 89k (consensus: 175k).The slowdown in private payroll employment was observed across both goods and service sectors, as well as in almost all broad industry categories. Private services hiring rose 61k, less than half the pace from the previous month. Still, hiring in the services sector was driven by business services (+56k), and health care & education (+16k). Goods hiring slowed materially as well, with manufacturing (+11k) and construction (+6k) recording much more subdued job gains after the strong showing at the start of the year. Government hiring (+9k) remained modest, with federal level hiring dropping by 1k.

Despite the unexpectedly weak payroll print, the household survey showed a strong change in employment of 472k, pushing the unemployment rate down by 0.2 percentage points to 4.5%. A smaller influx of people into the labor force helped keep the participation rate at 63.0% and unchanged on the month. Other underemployment measures were also lower, with the broadest measure (U-6) down 0.3pp to 8.9% - the lowest reading since December 2007.

Average hourly earnings rose by 0.2% during the month, matching consensus expectations. Moreover, wage growth for February was revised up slightly (+0.1 ppt) to 0.3% m/m. Year-over-year wage growth eased from 2.8% to 2.7% in March.

Average weekly hours were unchanged at 34.3.

Key Implications

Undoubtedly, the headline payrolls print was disappointing particularly when taken together with the strong reading from the huge ADP print mid-week (+263k) and the consensus expectation for a gain of 180k. However, there was a risk that today's print was set to disappoint as there were a number of temporary factors at play. For one, unusually warm weather in January and February likely helped pull forward activity in the construction sector. Furthermore, the snowstorm that hit much of the eastern U.S. during the survey reference week likely contributed to the disappointing payroll print.

But there are still some nuggets of good news tucked away in the details of this report. The household survey showed a reduction in all unemployment indicators, suggesting that labor market slack continues to be absorbed. Hourly wages advanced, while average hours remained broadly unchanged, all of which should help support consumer spending in the months ahead. Moreover, 98k jobs is likely just above trend employment growth for an economy that is operating near full employment. Overall, this report will is unlikely to change the Federal Reserve's calculus as they consider their next moves to tighten monetary policy.

Canada kept churning out jobs in March, adding another 19.4k net new positions. More workers were drawn to labour markets, creating an uptick in the participation rate that left the unemployment rate 0.1 percentage point higher at 6.7%.

This fourth straight monthly gain in employment was matched with a fourth straight monthly gain in full-time employment, which was up 18.4k on net.

The relative outperformance of the private sector also continued, adding 13.7k net positions (vs a 12.7k decline in public sector employment). This marks the seventh month in a row of private sector outperformance. With the public-private employment split nearly even, the overall gains in employment were driven largely by self-employment, which rose 18.4k positions on net.

In a break from recent trends, it was the goods-producing sectors that led the way (+21.8k), with gains in manufacturing (+24.4k) and construction (+8.3k) offsetting modest declines elsewhere. On the service side, strong gains in business support services (+18.2k), trade (+16.9k), and information (+10.7) were offset by declines in education (-14.9k), transportation (-12.8k), and a number of other sectors, leaving overall employment in services down 2.4k on the month.

Looking across the country, Alberta led the way, adding 20k net positions, entirely in full-time work. Other provinces reported more mixed performances, with employment falling 11.2k positions in Ontario, and down 5.1k net positions in Saskatchewan.

Hours worked finally ticked back up in March, rising 0.7% year-on-year, halting a three-month decline. The recent soft trend in the hourly wage rate continued however, rising just 0.9% y/y - this measure has only averaged 1.0% growth year-on-year so far in 2017.

Key Implications

There is just no stopping Canadian jobs gains, which once again broke through market expectations. The recent trend of solid full-time employment gains, the turn-around in hours worked, and a seeming stabilization of the participation rate are all signs of a Canadian economy that has started 2017 on the right foot.

Once again, if there is a soft spot to be found, it has to be in the wage data, which is testing depths last seen in the late 1990s. It is difficult to square the soft wage data with the solid employment gains and generally robust economic indicators more broadly, while other data, including less-timely employer-based surveys, still point to healthy wage gains.

Heading into the Bank of Canada's Wednesday policy interest rate decision, the jobs data will likely have only a marginal impact. It is possible that Governor Poloz may point to the still-soft wage data to reinforce his recent dovish tone, but more likely is a continued focus on the sources of growth and the perceived differences in economic slack vis-à-vis the United States.

EUR/USD - 1.0620

Original strategy  :

Sell at 1.0725, Target: 1.0610, Stop: 1.0760

Position : -

Target :  -

Stop : -

New strategy  :

Sell at 1.0725, Target: 1.0610, Stop: 1.0760

Position : -

Target :  -

Stop : -

As the single currency has remained weak after recent selloff, adding credence to our bearish view that the decline from 1.0906 is still in progress for further weakness towards previous chart support at 1.0600, however, a sustained breach below the latter level is needed to retain downside bias for subsequent selloff to 1.0570-75 and possibly towards 1.0550.

In view of this, would not chase this fall here and would be prudent to sell dollar on recovery as 1.0720-30 should limit upside. Only a firm break above resistance at 1.0773 would suggest low is formed instead, bring a stronger rebound to 1.0800 but resistance at 1.0827 should remain intact. 

USD/JPY - 110.90

Original strategy  :

Sell at 111.30, Target: 110.30, Stop: 111.65

Position :  -

Target :  -

Stop : -

New strategy  :

Stand aside

Position :  -

Target :  -

Stop : -

Although the the greenback slipped again in NY morning, as dollar has rebounded again after holding above indicated support at 110.11, retaining our view that further consolidation above this level would be seen and corrective bounce to 111.10-15 cannot be ruled out, however, reckon upside would be limited and resistance at 111.46 should remain intact, bring another decline later, below said support at 110.11-13 would confirm medium term decline has resumed for further subsequent fall to 109.80-85 (1.618 times projection of 112.20-111.12 measuring from 111.59) but price should hold above 109.50-55 (100% projection of 112.20-110.27 measuring from 111.46).

In view of this, would be prudent to stand aside in the meantime. Only above 111.46 resistance would abort and prolong choppy trading above 110.11 support, bring rebound to 111.59, then towards 111.90-00 later but price should falter well below said resistance at 112.20. 

Daily Pivots: (S1) 1.0619; (P) 1.0652 (R1) 1.0675; More....

EUR/USD's fall resumed by taking out 1.0628 temporary low. Intraday bias is turned back to the downside for 1.0494 support. As noted before, corrective rise from 1.0339 is completed at 1.0905. And more importantly, larger down trend is probably resuming. Decisive break of 1.0494 support will confirm this bearish case and target 1.0339 low. On the upside, break of 1.0688 resistance will indicate short term bottoming and bring stronger rebound first.

In the bigger picture, as long as 1.1298 key resistance holds, whole down trend from 1.6039 (2008 high) is still expected to continue. Break of 1.0339 low will send EUR/USD through parity to 61.8% projection of 1.3993 to 1.0461 from 1.1298 at 0.9115. However, considering bullish convergence condition in weekly MACD, break of 1.1298 will indicate term reversal. this would also be supported by sustained trading above 55 week EMA.

Daily Pivots: (S1) 1.2444; (P) 1.2474; (R1) 1.2499; More...

GBP/USD's sharp fall in early US session argues that fall from 1.2614 is possibly resuming. Intraday bias is cautiously on the downside for 1.2376. Break will confirm and target 1.2108 support level. Overall, price actions from 1.1946 are viewed as a consolidation pattern. Decisive break of 1.2108 will be an early sign of larger down trend resumption. On the upside, break of 1.2614 will extend the rise from 1.2108. But upside should be limited by 1.2705/2774 resistance zone to bring larger down trend resumption eventually.

In the bigger picture, fall from 1.7190 is seen as part of the down trend from 2.1161. There is no sign of medium term reversal yet. Sustained trading below 61.8% projection of 2.1161 to 1.3503 from 1.7190 at 1.2457 will target 100% projection at 0.9532. Overall, break of 1.3444 resistance is needed to confirm medium term bottoming. Otherwise, outlook will remain bearish.