Major jobs miss emboldens Fed doves

Macro 4 minutes to read

Michael O’Neill

FX Trader, Loonieviews.net

Summary:  Today's US jobs print marks a major confirmation of the macro slowdown narrative, and investors should expect calls for Federal Reserve stimulus to escalate in number and volume.


US nonfarm payrolls rose a disappointing 75,000 in May, well below the consensus for an increase of 185,000 jobs. Average hourly earnings were a tad weaker than expected, rising 3.1% compared to the 3.2% forecast.

Interest rate doves loved it. On Monday, St. Louis Federal Reserve president James Bullard became the first Federal Open Market Committee voting member to speak openly about the need to cut interest rates on risks to domestic economic growth from rising trade tensions.  The next day, Fed chair Jerome Powell said they were closely monitoring the implications of the trade negotiations for US economic growth. He didn’t say anything about cutting rates, but the similarity of his and Bullard’s concerns have rate cut doves cooing up a storm.

That will make President Trump happy. He has been berating Powell and the Fed for months because of its tight monetary policy; yesterday, he repeated his claim that Dow Jones Industrial Average would be 10,000 points higher.

EURUSD spiked to 1.1325 from 1.1261 while USDJPY plunged to 107.89 from 108.49.

USDCAD broke below major support at 1.3322 following the US employment data and another robust domestic employment report. Canada added 27,700 jobs in May while the unemployment rate slipped to 5.4% from 5.7%. For USDCAD bears, the currency is firing on all cylinders. The combination of strong Canadian data, soft US data, US rate cut fever and a rebound in crude oil prices are weighing on prices. The USDCAD technicals are bearish following the break of 1.3322 (the 50% Fibonacci retracement of the October/December 2018 range) which targets the 61.5% Fibonacci level of 1.3116 and the 76.4% level of 1.2990.  

The week ahead is heavy on data and very light on central bank monetary policy meetings. Nevertheless, as has been the case for the past few months, the US and China trade dispute will dominate trading. There are a lot of Chinese data on tap including trade, Inflation and Retail Sales which if weaker than expected, will reinforce fears of a global economic slowdown. China is expected to release its list of “unreliable” foreign entities which could spark another shift into safe-haven currencies.

President Trump ignited risk-aversion concerns with his threat to impose 5% tariffs on Mexico, effective Monday. Mexico is trying to avert Washington's wrath by deploying Mexican military troops to the Guatemalan border to prevent illegal immigrants from crossing.

Traders looking for Fed rate cuts will be looking for weaker than expected US inflation and Retail Sales data, due Wednesday, and Friday, respectively.
USDCAD (daily, source: Saxo Bank)
Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-hk/legal/disclaimer/saxo-disclaimer)

Saxo Capital Markets HK Limited
Rooms 2001-02, 20/F York House
The Landmark
15 Queen's Road Central
Hong Kong

Hong Kong S.A.R

Saxo Capital Markets HK is a company authorised and regulated by the Securities and Futures Commission of Hong Kong. Saxo Capital Markets HK Limited holds a Type 1 Regulated Activity (Dealing in securities); Type 2 Regulated Activity (Dealing in Futures Contract) and Type 3 Regulated Activity (Leveraged foreign exchange trading) licenses (CE No. AVD061). Registered address: Rooms 2001-02, 20/F York House, The Landmark, 15 Queen's Road Central, Hong Kong

By clicking on certain links on this site, you are aware and agree to leave the website of Saxo Capital Markets, proceed on to the linked site managed by Saxo Group and where you will be subject to the terms of that linked site.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

Please note that the information on this site and any product and services we offer are not targeted at investors residing in the United States and Japan, and are not intended for distribution to, or use by any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation. Please click here to view our full disclaimer.