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FX Breakouts Or Fake Outs? It All Rests On NFPs

Published 06/02/2021, 06:34 PM
Updated 07/09/2023, 06:31 AM
This is a big week for currencies, but so far, we’ve seen nothing but consolidation. In today’s trade, the greenback strengthened against the New Zealand dollar and Swiss Franc, weakened versus sterling and the Canadian dollar, and was unchanged against the euro and the Japanese Yen
 
The Federal Reserve’s Beige Book report confirmed what investors already knew – which is that the economy grew at a faster pace in April and May. There was little response to this report because the main focus is non-farm payrolls on Friday. The economy is improving, but job growth slowed significantly in April. If hiring fails to pick up in May, currencies and equities will be in trouble.
 
The hesitation in stocks is a sign of overall investor concern. U.S. equities ended the day unchanged, extending a multi-day consolidation that could mark a top. For that to happen, the jobs report would need to be ugly. Earlier this week, we learned that manufacturing activity accelerated, but the U.S. dollar fell because manufacturing job growth expanded at a slower pace. Tomorrow, the ISM non-manufacturing report will be released. If the service sector fails to report a meaningful pickup in jobs, traders could sell U.S. dollars in fear of weak NFPs. If ISM is good, we could see renewed demand for U.S. dollars as traders position for a strong rebound in jobs on Friday.
 
The U.S. jobs report is one of many important releases this month that could set the stage for big FX moves. Updated economic projections are scheduled for release from the Federal Reserve and the European Central Bank. Upgrades are expected for inflation and growth forecasts, but what investors are really watching for are hints of taper. The Bank of England, Bank of Canada and the Reserve Bank of New Zealand have made their first moves, either in the form of fewer asset purchases or projections for an earlier rate rise. The U.S. economy is expanding just as much if not more quickly than the UK and Canada, but the Fed has been reluctant to alter its forward guidance.  
 
The Reserve Bank of Australia is in a similar position. The economy is improving, but the RBA maintained its dovish bias because of mixed data. First-quarter GDP growth was stronger than expected, but the contraction in retail sales was deeper. Interestingly enough, while the Reserve Bank of New Zealand is less dovish than the RBA, the New Zealand dollar was the worst performing currency. Lower dairy, import and export prices contributed to the move. The Canadian dollar was the best performer, thanks to a smaller decline in building permits and fresh 2.5-year highs in oil. Weaker German retail sales prevented EUR/USD from trading higher, but strong housing numbers lifted GBP/USD. Looking ahead, revisions to Eurozone and UK PMIs are due for release tomorrow.  
 

Latest comments

Mrs Kathy lien how are you doing today
Great report
nice one... always a great insight from you.
USA's prosperity and USD's strength depend on stimulus checks, not to physical work. With checks people can spend , service sector goes higher , companies have revenues , investors buy USD and stocks. All this cycle is based on stimulus measures.
Great one thank you. We always look to your articules for guidance keep it up.
ok darling
Very good article Kathy, but agree with Nuno on stocks, dont see a strong reason to go bearish given that in any case FED will cover them in case NFP dissapoints again.
okay
Stocks will go up no matter the NFP numbers, if they are good it will go up because economy is strong, if they are bad will go up because FED will not taper.... Magical world this stock market...
but such trend may not repeat as since the inflationary pressure becomes real and investors are much more risk averse now. when investors are bearish, the reverse is true as any news now could be intercepted in a negative direction.
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