The US Federal Reserve will keep a close eye on today US employment numbers to get a view on how the economy is doing. Yesterday, Liu He and Donald Trump held a meeting on positive tones. Debates Brexit continue in the UK Parliament.
As always, in the beginning of every month, we get the US employment numbers for the previous month. The non-farm payroll figure for March is expected to come out at 174k, which is a good increase from the February’s 20k number. In the middle of this week, on Wednesday, we received the US ADP non-farm employment change stats for the month of March, which came as a disappointment, falling by around 50k below the estimated mark. The expectation was to see a number closer to 184k, but in reality, the figure came out at 129k, much worse than the one for February (197k). Some investors like to monitor the ADP number carefully, in order to gauge their expectations before the NFP release. That said, such methodology is not always an accurate one and it is better to wait for the actual US jobs numbers to come out. Another set of figures which everyone should keep an eye on are the March average hourly earnings on MoM and YoY basis. The expectations are quite neutral to slightly negative, for now. The YoY figure is believed to have remained the same, at +3.4%, whereas the MoM one is forecasted to have slid to +0.2% from February’s +0.4%.
One institution which will keep a close eye on the US jobs report will be the US Federal Reserve. As we know now, there is no probability to increase US interest rates by the end of the year. At the time of this report, according to the Fed Fund Futures, there percentage of keeping the rates the same as now, sits at around 47.6%. To see a rate cut at the end of 2019, at least by 25bps, is currently at 38.6%. If the job numbers come out better than expected, the Fed might keep this in mind, but continue observing the other US economic data sets, in order to re-evaluate their approach at later stage. Certainly, if US economic data continues to disappoint, like yesterday’s ISM non-manufacturing PMI figure, which came out at 56.1 versus the expected 58.1, then the Fed’s approach could still be more to the dovish side. They are also concerned over how the US-China trade wars will end and what will be the real economic impact of the Brexit outcome.
It seems like USD/CAD is waiting for today’s US and Canadian jobs figures to come out, before making the next big move. For now, we can see that the pair is stuck in a short-term range between two key levels, the 1.3300 level on the downside and the 1.3375 barrier on the upside. On one hand, the rate is closer to the upper bound of that range and is above its 200 EMA on the 4-hour chart, which could be seen as a positive. But on the other hand, the employment data releases might change the technical picture very quickly, hence why we will remain somewhat neutral, at least in the short run, and wait for a confirmation break of one of our key levels.
If the bulls are strong enough to push USD/CAD above the 1.3375 barrier, this might open the door to the pair’s next potential resistance zone, at 1.3405, marked by the intraday swing low of March 28th. If that area is not able to withhold the rate from accelerating further, the pair might make its way towards the short-term tentative downside resistance line, drawn from the highest point of March, or it may test the 1.3445 hurdle, which is near the highs of March 25th and 28th.
Alternatively, if USD/CAD travels below the 1.3340 obstacle and falls below the 200 EMA, this could increase the chance of seeing a test of the 1.3300 support zone, which is the lower side of the aforementioned range. If it fails to resist the bears, this is when we will become more sceptical about the short-term upside scenario. A break below 1.3300 would confirm a forthcoming lower low and clear the path to the 1.3270 level, which acted as good support on March 19th and 20th. If the selling continues and the 1.3270 area is just seen as a temporary obstacle on the pair’s way down, the next potential support zone could be seen around the 1.3240 mark, which is near the high of February 22nd.
Yesterday, after Chinese vice-premiere Liu He held meetings with his counterpart-negotiators from the US, Robert Lighthizer and Steven Mnuchin, the Chinese official met with Donal Trump. Liu passed the message to Trump from the Chinese president Xi Jinping that substantial progress has been made during this week’s trade talks. Nevertheless, there is still a lot to negotiate between the two states, before Trump and Xi could meet to sign the final deal. For now, the whole deal is still up in the air and it is unknown exactly when and where the meeting between the two presidents could be held.
Meanwhile over on the Brexit island, the can continues to be kicked further. Yesterday, the House of Lords was debating over the House of Commons vote to force May to seek extension on the potential leave-date from the EU. The Labour MPs were seen urging Jeremy Corbyn not to put too much emphasis on the potential second referendum idea, as it could decrease the chances for Labour to win the next UK election.
But an interesting note came out of the EU, where the European Council President Donal Tusk had proposed to give UK a somewhat flexible 12-month extension. The UK would have the right to leave earlier, if they eventually reach a deal in the British Parliament. That said, the idea still has to be approved by other European member states and most likely, it will be discussed during next week’s EU emergency summit.
Yesterday, EUR/GBP had a good attempt to push higher but got held near its short-term downside resistance line taken from the high March 21st. At the same time, after finding good support near the 0.8490 area, the pair started forming higher lows. Looking at this short-term picture, we can see that EUR/GBP is coiling up in anticipation of the next catalyst, which could eventually lead the pair in breaking through one of its key support and resistance levels. For now, we will remain side-lined and wait for the next big move that could place the rate outside of the triangle formation.
If the bulls go ahead and take control from the bears, EUR/GBP could break the aforementioned downside line and test the 0.8607 barrier, marked by the high of Tuesday. If the rate acceleration continues and we see a strong push through that barrier, this would also place the pair above its 200 EMA on the 4-hour chart. We could then examine the 0.8650 zone, as the next potential obstacle, a break of which could open the door to the 0.8690 resistance area, which is the intraday swing high of March 21st.
Alternatively, a strong push lower, a break below the 0.8520 hurdle and the previously-mentioned upside line, could invite more sellers back into the game. This might put the 0.8490 obstacle back on the radar, but if it fails to withhold, then a further slide may bring the rate to the 0.8470 level, marked near the lows of March 11 and 13th.
We get March employment data from Canada as well. The unemployment rate is expected to have remained unchanged at 5.8%, but the employment change is forecast to show that the economy lost 10k jobs after gaining 55.9k in February. Despite the upside surprise in February’s inflation data and the better than expected GDP for January, a weak employment report could add some credence to BoC policymakers’ choice to turn dovish at their latest meeting. At that gathering, they altered their view for more rate increases over time and noted that “the outlook continues to warrant a policy interest rate that is below its neutral range”. They also highlighted the uncertainty surrounding the timing of their future actions. Thus, even if the inflation and GDP data is pleasant news for them, we still believe that they would like to see more improvement before they get confident on further rate increases again.
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