Dollar on the backfoot as Friday’s NFP fails to offer launchpad
More ugly data out of China impacts risk appetite
Fed’s Lockhart and Fischer could offer yet more Fed rate hike clues
Friday’s US jobs report was apparently not enough to shift the markets longer-term expectations on US Federal reserve rates.
The report ticked most of the boxes needed to keep us rolling toward a September rate hike, particularly given the latest guidance from the Atlanta Fed’s Dennis Lockhart last week and noise via unofficial channels like the WSJ’s Jon Hilsenrath.
But it seems the market is stuck in the summer doldrums at the moment and questioning whether short-term gaming of the lift-off date is worth anticipating as we remain complacent on the Fed’s eventual policy trajectory (which hasn’t changed meaningfully since January if we look out at the Fed Funds futures for early 2017, for example.)
Another thing holding the USD back is the market’s still rather sour mood, as equities remain mired in the range and even testing the critical 200-day moving average in the case of the S&P500 index. US treasuries are also relatively bid.
If the market was in a more positive mood, it would be celebrating European Central Bank liquidity and rallying strongly in the US in the belief that the Fed rate hike trajectory will prove extremely shallow. Instead, we seem to be questioning the quality of the recovery and perhaps fretting over the impact of a weak China.
Speaking of China, the trade data for July released over the weekend was ugly stuff, with both imports and exports falling steeply in year-on-year terms, the first time this has happened at this time of the year since the global financial crisis.
Another interesting China news story is Bloomberg’s coverage of China dumping $180 billion in treasuries and the market hardly noticing. Remember when this was believed to be the Armageddon scenario for the US dollar?
Today, let’s watch for Fed speakers to either confirm or deny the reaction to Friday’s US jobs report, with Stanley Fischer’s interview today at 1115 GMT the bigger focus as he is an influential voice within the Fed and we already heard from Lockhart last week.
EURUSD
The slicing and dicing of support and resistance here is getting ridiculous in light of the collapsing volatility, but let’s watch the 1.10 level on the upside on daily close.
There are endless levels above there for resistance, the most important perhaps at the 200-day moving average, which is currently dropping 8 pips or so a day from the 1.1400 area. We haven’t touched this MA in over a year now.
To the downside, the 1.0850/00 zone is the obvious key to rejuvenating the bearish case.
USD: Friday’s rally attempt beaten back and a real near-term disappointment for USD bulls, but we haven’t really tacked on any momentum in the USD selling yet and today’s Fischer interview is a two-way risk.
EUR: Euro is getting the most out of this risk-off environment. Important to watch general sentiment picture across markets as a coincident indicator for the euro.
JPY: Doing its utmost to avoid making an impression. Disappointment for USDJPY bulls to see the 124.50 area slipping, but 123.50 Ichimoku cloud top looks like first key level if the pair is threatening to break down.
GBP: Sterling suffering on last week’s Bank of England disappointment and the risk-off sentiment — watching whether GBPUSD selling picks up again after key 1.5470 area threatened on Friday — and the EURGBP bear case has left the building until further notice.
CHF: EURCHF has been trading up against the key 1.0800+ area post-revaluation highs and SNB’s Fritz Zurbruegg was out with verbal intervention over the weekend – but is it enough with weak risk sentiment to see significant further CHF weakness?
AUD: AUD a bit resilient versus USD, though weak China news overnight has not been much of a help. AUDUSD is trying to rally, but needs to cut through local 0.7430 area resistance for a test toward 0.7500/50.
CAD: CAD weaker than other pairs on negative economic picture in Canada and weak oil prices. Support 1.3050/00 for USDCAD
NZD: Not cutting much of a profile at the moment – weak risk appetite is a minus, but the wilting USD is a bit of a support as NZDUSD mid-range.
SEK: This market doesn’t want to hold a small, negatively yielding currency in a risk-off environment, so EURSEK saw its highest weekly close in over five years last week heading into the CPI later this week.
NOK: Weak risk appetite and weak oil is not the stuff a NOK rally is made of, so risk of higher EURNOK as long as these two factors are ascendant.
