Will payrolls trigger a further USD correction?
On Thursday, the ECB decision to stop accepting Greek bonds as collateral dominated market headlines. However, the impact on (currency) markets was moderate. The euro even reversed earlier losses on presumed SNB interventions to weaken the Swiss Franc. EUR/USD closed the session at 1.1477 substantially stronger than the 1.1345 on Wednesday. USD/JPY was still remarkably stable in the well‐known 117 area.
Overnight, Asian stocks trade mixed. Japan profits from the strong performance in the US yesterday evening. USD/JPY is holding its tight sideways consolidation pattern in the lower half of the 117 big figure. Chinese equities again underperform. The PBOC raised the yuan reference rate. It forces the yuan spot rate higher as the Chinese currency is trading close to the lower bound of its trading corridor. In its quarterly statement, the Reserve Bank of Australia slightly reduced its growth forecasts for this and next year, justifying this week's rate cut. At the same time, it gave no concrete hints on any follow‐up rate cuts. Markets still anticipate the chance of further easing. Even so, the balanced tone of the quarterly policy report (and the rise in the oil price) are supporting the Aussie dollar this morning. AUD/USD returns north of the 0.78 level compared to a correction low at 0.7626 reached earlier this week. EUR/USD is changing hands in the 1.1470 area, holding within reach of the recent highs.
Today Greece will probably remain in the headlines. However, yesterday's price action illustrated that the direct impact on the global (currency) markets might be limited. There are no important data in Europe. Whatever, the US payrolls report will come into the spotlights. The consensus expects employment growth at 230.000 (from 252.0000). The unemployment rate (expected unchanged at 5.6%) and the average hourly earnings (expected 1.9% Y/Y from 1.7% Y/Y) have also potential to move the markets. The consensus remains high/optimistic even as other recent US data were more mixed. So, a (slight?) disappointment is possible. In theory, this should be negative for the dollar, too. However, of late, the market reaction of both EUR/USD and USD/JPY to eco data or other news was often far from straightforward. We also keep a close eye at the reaction of core bond yields. If bond markets would ignore a disappointing payrolls report, the damage for the dollar could stay limited
In a day‐to‐day perspective, for EUR/USD, we continue to look out how the 1.1534 (ST reaction high)/1.1679 (reaction top) resistance area performs. Yesterday, we had the impression that that the euro short‐squeeze was losing momentum. However, the presumed SNB action decided otherwise. We maintain the tactical view that the above mentioned resistance won't be that easy to regain in a sustainable way. So, we hold a cautious sell‐on‐up‐ticks strategy. That said, we are well aware that multiple events (Greece etc) contain the risk of wild swings in the major currency cross rates.
From a fundamental point of view, we don't row against the negative EUR/USD trend in a context where the ECB has yet to start QE. More pronounced upticks might still be used to buy the dollar/sell the euro. We didn't see the recent euro rebound as a trend reversal. We stay cautious on USD/JPY even as the pair remains within the established consolidation pattern. Low core (USD‐EUR) yields may continue to cap the topside. In addition, at some point, Asian/Japanese equities might become nervous on the ‘competitive' devaluations in several other countries. A risk‐off correction still might bring the yen in the picture evens as the Japanese currency didn't show a clear trend of late. USD/JPY 115.57 remains a key point of reference.
