Factoring in 'Trump bluster'

John Hardy

Head of FX Strategy

Trump apparently didn’t like the coverage of his prior tariff threats and perhaps more so the Chinese response, likely taking exception to the news coverage that China holds the upper hand and insulted on some level (all levels?) that the threatened tariffs from the Chinese side seemed aimed most squarely at Trump voters in red states. In any case, the reaction function was largely the same across markets, if somewhat more muted as the market has to discount the numbers being thrown around and price in some kind of “Trump bluster” factor. The market is doing everything it can, it seems, to express hope that things somehow turn out for the better and focus on the risk of both a strong US labour market and next week’s US CPI number, where the core reading is expected to vault above the 2.0% year-on-year level for the first time in a year. USDJPY reacted less overnight than it did the previous night and is perhaps the react with the most beta to the US jobs data today if that data brings a strong new adjustment to the Fed’s rate hike path. 

As usual, the most important data point in the US jobs report today is the average hourly earnings number after the one-two big momentum shifts in the January and February data, with the former providing strong evidence that the Fed is behind the curve before the latter very quickly assuaged these concerns with both a deceleration for the February print and a revision lower of the January spike. A 2.7% year-on-year and +0.3% month-on-month reading is expected there and an upside surprise feels ready to move this market, which has largely gone soft on Fed expectations since the March 21 Federal Open Market Committee meeting. Payrolls are secondary, but are expected at +185k after the February blowout over 300k.

San Francisco Fed president John Williams was named as the new head of the influential New York Fed. He is considered on the hawkish side of center and will be out speaking very late today, with his words now carrying more weight as a permanent voter.

Chart: USDJPY
USDJPY doing its best to ignore the risk-off reactions to the Trump-China trade tit-for-tat and rallying into the key resistance of the prior major low around 107.30+ and coincidentally, the bottom edge of the Ichimoku cloud. The next pivotal area higher looks like 108.50 or so, if the USD should continue to rally through next week on heightened Fed rate hike expectations (today’s jobs data and equity market closing level the first keys) and next Wednesday’s March US CPI data and FOMC minutes. It would take even more to fully turn the downtrend, but the status should be clear on the other side of the April 27 Bank of Japan meeting, if not before, if this is merely a countertrend thrust or something bigger. We assume the former, but have an open mind.

forex morning update
 Source: Saxo Bank

The G-10 rundown


USD – The USD seems to be in a rallying mode, quite strong across the board again despite fresh overnight disruptions from the Stable Genius in the White House. Strong US data would seem to do the most to provide further support if there are no fresh alarm bells in the US-China trade tiff.

EUR – the euro looking less broadly weak than it has recently, but EURUSD is weak within its absurdly small range of the last several weeks, and perhaps stale longs are finally ready to surrender if strong US data today leads to a firming of the greenback.

JPY – as indicated above, it looks like USDJPY could prove the most high beta to the reaction in US yields and risk appetite to the US data today, as the USD strength has recently picked up on renewed pick-up all along the US yield curve.

GBP – short-term disappointment for sterling bull hopefuls as EURGBP steered away from the important lows yesterday – the closing level for the day and week an important setup leading into next week’s action and a potential range break lower – would likely require strong risk appetite and a euro on the defensive elsewhere.

CHF – very modest safe haven bid for CHF as the trade war talk keeps a lid on EURCHF for now – USDCHF, meanwhile, has been having a look at its 200-day moving average.

AUD – AUDUSD looking heavy once again into the lows, but the three prior attempt to post new lows for the cycle have led nowhere, even as the bounces have done likewise. We’re not hopeful for the Aussie – noting the lagging RBA expectations and commodity prices not cooperating, and concerns on the financial stability front popping up if we look at the big Australian bank stock prices.

CAD – a pivotal day for USDCAD in all likelihood with both US and Canada reporting respective jobs numbers. A strong close above 1.2800 for the day/week, the prior support level, would set up a hopeful tactical scenario for the bulls.

NZD – the vice grip of the NZDUSD range continues to prevent all directional ambition – the bears are close to having a technical hook for more declines if that very well-etched 0.7150-85 area is taken out to the downside in coming sessions.

SEK – While EURSEK has stopped rising for a spell, the consolidation has been extremely shallow, leaving little room for hope for those looking for the krona to fight back. There’s nothing to support SEK in rate developments, either and the next important test for the currency is next Thursday’s March CPI data.

NOK – EURNOK has yet to take out support and may not make any decisive move until next Tuesday’s CPI data or if we see a more notable development in the oil market.

Upcoming Economic Calendar Highlights (all times GMT)

0730 – ECB’s Coeure to speak 
1210 – Norges Bank Governor to speak 
1230 – Canada Mar. Net Change in Employment 
1230 – US Mar. Change in Nonfarm Payrolls 
1230 – US Mar. Average Hourly Earnings 
1230 – US Mar. Unemployment Rate 
1400 – Canada Mar. Ivey PMI 
1515 – UK BoE’ Carney to speak 
2000 – US Fed’s Williams (FOMC Voter) to speak 

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