Both of the Antipodeans report much better than expected job growth, catching the short-term market off guard and squeezing shorts. But for Australia in particular, the significance of the data is questionable.
The Australian jobs report was far stronger than expected. Looking back over the data series, we can clearly see these spikes on occasion, but it has been a while since one occurred. On virtually every occasion, the following month’s data mean reverts, either with a barely positive reading or an outright ugly negative one. To take the most recent example, the February payrolls growth was +72k to be followed by March’s -31k. In other words – the long term implications for the Australian economy are nil - but don’t tell that to folks (like me) that were shorting the Aussie into the data. As for the unemployment rate, it remains on an upward trend.
The market had gotten rather short of Aussie as key local support (trend-line and local flat-line) taken out, so the news saw a nasty gap squeeze higher as stops were tripped all the way up through 1.0250. This isn’t a game changer for the Aussie, but does make the local technical situation far more muddled if we hold higher here rather than slipping back lower quickly today, since the 1.0220 area was rather important resistance. If we stay up here, then the risk rises of an ugly range-fest back toward 1.0400, just below which we have the 200-day moving average.
Chart: AUDUSD
The rally suggests the massive longer-term range channel remains the key structure of note after the trend-line and local flat-line support breaks failed to follow through (so far, at least).
AUD/NZD" title="AUD/NZD" width="455" height="311">
The New Zealand employment report was, if anything, even stronger than the Australian one as the as the unemployment rate plunged -0.6% to 6.2%. New Zealand data has remained generally very strong – taking the kiwi to nosebleed levels recently before the RBNZ was out saying that it had intervened at times recently. Looking at NZDUSD, we need a 0.8360 break for the bearish case to find confirmation, which after this data is only likely if we get particularly bad news out of China or a risk off move (or JPY rally or both).
BoE – no expectations
The market is expecting nothing from the BoE today because of its habit of not releasing any kind of report on its deliberations. The overwhelming consensus is that the UK data of late has improved sufficiently to keep things on hold until at least the arrival of Carney this summer. The market could react quite strongly, however, to today’s March Manufacturing Production data - the data series is choppy there, so I wouldn’t be surprised to see a negative surprise today. In fact, every single spike higher like February’s +0.8% number has mean reverted the following month since 2011. For example, December’s +1.5% MoM reading yielded to January’s -1.9% reading. With that behaviour in mind, anything over 0.0% would look relatively strong. Expectations according to Bloomberg are for a +0.3% MoM reading for today’s March release.
Technical observations
EUR/USD – with yesterday’s 1.3130 level taken out, 1.3125/15 is the local support and overhead resistance is clearly 1.3200/50. I should be side-lined until we see a swoon below 1.3100 or a move above 1.3200, seems default view is that we have a look at yesterday’s highs before possible further uncertainty within the range.
GBP/USD – a data reaction spasm likely. Still can’t grasp that we are at these levels, but looks technically strong with yesterday’s strong pull back through 1.5500. Still – I’m looking for some kind of bearish reversal sequence ahead of the 200-day moving average, which is slowly descending towards 1.5750. 1.5600/10 is the critical local resistance and 1.5450/00 is the pivot zone for the downside. There’s a channel structure here as well.
AUD/USD – awaiting further input. Still prefer strategic shorts, but local technicals are at cross purposes. Would prefer that the action stays below 1.0300, but if the pair stays firm, we may be looking at a test even higher. Generally, a short stance as long as we remain below 1.0400, and a close back below 1.0200 today would suggest this was merely a temporary back-up.
USD/CAD – all about parity and the 200-day moving average just below that level, but there’s a rising trend-line just above parity in play as well. Technicals are not epretty, but I’m still looking for support/a turnaround in this parity area.
USD/JPY – yesterday saw a little tease below support, which now resides at 98.58. Everything looks so orderly as the pair coils in a restricting range of consolidation – looking for a break-out soon. 97.00 is the bigger level to the downside.
EUR/JPY – looks technically strong in consolidation pattern, but for some reason I’m not impressed - perhaps because JPY crosses have failed to catch further upside momentum. Technical levels a bit hard to come by.
AUD/JPY – this one remains the key JPY cross to watch for high beta - that 100.00 level is important as is the 55-day moving average which has been a critical one in recent months – this comes in just below 99.50.
EUR/CHF – 1.2350 is the clear overhead resistance - needs to be taken out, but that looks a bit tougher after yesterday’s shooting star candle
EUR/GBP – 0.8500 is the upside break level and 0.8400 the downside one
EUR/NOK – 7.50/7.45 test likely - hard for it to even consolidate higher after very hawkish Norges Bank relative to expectations.
EUR/SEK – (yawn - generally looking for 7.50 to hold) - NOKSEK more interesting for possible run to 1.1450 as long as we remain above 1.1275 here after Norges Bank.
Economic Data Highlights
- New Zealand Q1 Unemployment Rate out at 6.2% vs. 6.8% expected and 6.8% in Q4
- China Apr. Consumer Price Index rose +2.4% YoY vs. +2.3% expected and +2.1% in Mar.
- China Apr. Producer Price Index fell -2.6% YoY vs. -2.3% expected and -1.9% in Mar.
- Australia Apr. Employment Change out at +50.1k vs. +11.0k expected and -31.1k in Mar.
- Australia Apr. Unemployment Rate out at 5.5% vs. 5.6% expected and 5.6% in Mar.
- UK Mar. Industrial and Manufacturing Production (0830)
- UK BoE Announces Rates and Asset Purchase Target (1100)
- US Fed’s Plosser to Speak (1130)
- US Fed’s Lacker to Speak (1200)
- Canada Mar. New Housing Price Index (1230)
- US Weekly Initial Jobless Claims (1230)
- US Weekly Bloomberg Consumer Comfort Survey (1345)
- Japan Mar. Current Account / Trade Balance (2350)
- Australia RBA Statement on Monetary Policy (0130)