The USD rally faced a strong headwind yesterday from a weak ADP payrolls number and the weaker-than-expected ISM manufacturing number, which came in at a disappointing 51.5 for March, the lowest level since May of 2013.
Weather, port disruptions on the west coast of the US due to a labour dispute, and the collapse in energy prices are likely contributors and we shouldn't read too much into this number, as we’ll look for activity to pick up in the months ahead.
I suspect the ISM non-manufacturing survey up next Monday will not show similar weakness. Still, the market will be sensitive to any significant negative surprise in tomorrow’s nonfarm payrolls release as we see the market’s assessment rapidly pricing out all but one US Federal Reserve rate hike for the 2015 calendar year.
In Australia, the AUD trade-weighted exchange rate is possibly looking at its weakest weekly close since 2010 as iron ore prices remain on a steep descent, suggesting weakness in Chinese demand.
The weakness in the Aussie has been extremely persistent and across the board and may climax around or soon after next Tuesday’s Reserve Bank of Australia meeting, at which the central bank is nearly certain to cut interest rates by 25 basis points to take the rate to 2.00%, depending on the RBA’s guidance. Overnight, AUD/NZD set a new low for the cycle as parity looks only a few sessions away.
Chart: USD/JPY
This pair cannot remain terminally bound within a small range, though last year’s seven-month wander in the desert between 100 and 105 shows that this can happen. Within the range, it looks like the first support comes in at the recent 119.25 recent lows, while a push back below the Ichimoku cloud (perhaps on weak US payrolls numbers tomorrow and/or weak risk appetite) could lead to a test of the range lows.
Bulls, meanwhile, will want to see a sharp rally and close above 121.50 and even 122.00 to look for new cycle highs.
Yesterday, there was brief furor over a Der Spiegel article claiming Greek government sources stating Greece would not make its payment to the IMF next . The story was later denied by a Greek government spokesman.
The G-10 rundown:
USD: Looks in a nervous pivot zone, with potential downside if tomorrow’s payrolls aren’t supportive and the likes of 119.25 and even 118.30 aren’t holding in USDJPY, and EUR/USD can’t remain below 1.0800.
EUR: What’s to like, though the market is already quite short the currency, so any upside will be about negative surprises elsewhere. Watching today’s release of the second set of European Central Bank minutes, though again, the forward guidance is so established there that the near-term course for euro will be about the political situation in Greece and potential developments as next Thursday’s IMF payment deadline nears.
JPY: Watching JPY with interest on moves in risk appetite, as the US S&P 500 benchmark is trading not far from a rather clear support line around 2,040 on the cash index, which in turn is not far from the 200-day moving average, currently around 2012. Any meltdown in risk appetite would likely be accompanied by a bout of JPY strength.
GBP: We have a political debate tomorrow as we’re moving into the final month of the election campaigns. The market has already discounted sterling on election worries, but has it discounted the currency enough? 0.7300 is local resistance in EUR/GBP and 0.7225 has sprung up as the first support level to the downside.
CHF: Edging stronger against the euro, with the next Fibo retracement coming in around 1.0170, while the USD/CHF support zone is 0.9500. Will we have to see the Swiss National Bank rattling its cage before we find better signs of EUR/CHF support?
AUD: The weakest of the weak at the moment, with next Tuesday’s RBA meeting as the next major event risk that may see a climax in the selling. AUD/USD has been poking at the cycle lows and even EUR/AUD is having a look at trying to rally.
CAD: A sharp rally in crude prices supporting here. USD/CAD support comes in around today’s opening levels at 1.2600, with the last notable Fibo support down around 1.2555, so the bulls will want to see that pair rallying soon or we may remain mired in the range, or worse, for longer.
NZD: The divergence in the kiwi’s and Aussie’s fortunes is remarkable and is hardly sustainable over a long time frame. Will be looking for the Reserve Bank of New Zealand to make plenty more noise soon if this continues, as the Aussie is nearly at a 5-year low in trade weighted terms, while the NZD is only a couple of percent from an all-time high.
SEK: EUR/SEK can’t decide what it wants to do. Yesterday’s strong comeback from local range lows and across the 200-day moving average again tilts the bias back a bit higher, thought the two weeks of churning suggest little conviction.
NOK: EUR/NOK looking heavier within the range on the rally in oil prices and may look to test range lows on a continuation of same, especially if 8.60 falls again. The 200-day moving average has crept up above the range lows and is trading close to 8.64 now.
Economic Data Highlights
- Australia Feb. Trade Balance out at -1256M vs. -1300M expected and vs. -1003M in Jan.
Upcoming Economic Calendar Highlights (all times GMT)
- Eurozone ECB publishes minutes of March 4-5 meeting (1130)
- Canada Feb. International Merchandise Trade (1230)
- US Weekly Initial Jobless Claims (1230)
- US Feb. Trade Balance (1230)
- US Fed Chair Yellen to Make Opening Remarks at a Conference (1240)
- US Mar. ISM New York (1345)
- US Feb. Factory Orders (1400)
- Japan Mar. Markit Services PMI (0135)
- China Mar. HSBC Services PMI (0145)