Dollar Rebounds as Strong NFP Puts Fed Cut into Question

Market overviews

Dollar rebound strongly today after much better than expected job data. 10-year yield also jumps sharply and is currently up 0.083 at 2.022, back above 2% level. DOW futures, on the other hand, tumble notably. Analysts reactions regarding to the data are divided. Some are more aligned with fed fund futures pricing and are still expecting a rate cut later this month. But some like us, expect that the data is enough for Fed to hold their hands first. We’d argue, with trade war escalation averted and no deep deterioration in data, Fed policymakers would better hold their bullets for now.

Technically, now, the question is whether Dollar could take out next resistance level before weekly close. Among them, break of 1.2506 support in GBP/USD will resume the fall from 1.3381. Break of 180.80 resistance in USD/JPY will indicate near term bullish reversal. Break of 1.3145 resistance will also indicate near term bottoming. Meanwhile, break of 1.1181 support will bring focus to 1.1107 low.

In Europe, currently, FTSE is down -0.53%. DAX is down -0.55%. CAC is down -0.53%. German 10-year yield is up 0.0512 at -0.345. Earlier in Asia, Nikkei rose 0.20%. Hong Kong HSI dropped -0.07%. China Shanghai SSE rose 0.19%. Singapore Strait Times dropped -0.16%. Japan 10-year JGB yield dropped -0.0067 to 0.162.

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US NFP grew 224k in June, dollar jumps sharply

US non-farm payroll report showed 224k growth in the job market in June, notably above expectation of 164k. Prior month’s dismal figure was revised slightly down from 75k to 72k. Employment growth has averaged 172,000 per month thus far this year, compared with an average monthly gain of 223,000 in 2018. In June, notable job gains occurred in professional and business services, in health care, and in transportation and warehousing.

Unemployment rate rose 0.1% to 3.7%, above expectation of 3.6%. Participation rate rose 0.1% to 62.9%. Average hourly earnings rose 0.2% mom, below expectation of 0.3% mom. But prior month’s wage growth was revised up from 0.2% mom to 0.3% mom.

Canada employment contracted -2.2lk in June, below expectation of 10.0k. Unemployment rate rose to 5.5%, up from 5.4% but matched expectations.

German factory orders dropped -2.2%, foreign orders plunged

German factory orders dropped sharply by -2.2% mom in May, much worse than expectation of -0.1% mom. Looking at some details, domestic orders increased by 0.7% mom but foreign orders plunged -4.3% mom. New orders from Eurozone dropped -1.7% mom while orders from other countries dropped -5.7% mom.

The contraction was also broad-based. Intermediate goods orders dropped -1.5% mom. Capital goods orders dropped -2.8% mom. Consumer goods orders dropped -0.7%.

Japan household spending rose 4% yoy in May, highest in four years

Japan overall household spending rose 4.0% yoy in May, well above expectation of 1.40% yoy. That’s the fastest pace in four years since May 2015. The results argued that pickup in consumption could help offset some weakness in external demand in Q2.

However, spending ahead could be weighed down by sluggish wage growth ahead. Sentiments could also weaken on uncertainty over economic outlook, due to trade war. Additionally, the scheduled sales tax hike could also have negative impacts on spending. For now, Prime Minister Shinzo Abe is holding on to the plan to raise sales tax to 10% this October.

Also released, leading indicator dropped to 95.2 in May, down from 95.9, below expectation of 95.3.

BoJ survey shows 83.4% of public expects prices to rise over five years

According to BoJ’s Opinion Survey, 83.4% of public expects price level to go up over the next five years. That’s up from 82.3% in March and was the highest since June 2016. Among them, 28.7% expects price level to go up significantly, up from 26.9%. 54.7% expects price to go up slightly, down from 54.7%.

On price levels one year from now, 80.5% expects prices to go up. 11.7% expects prices to go up significantly, up from 11.3%. 68.8% expects prices to go up slightly, up fro 67.4%.

BoJ Amamiya: Baseline scenario for economy unchanged

BoJ Deputy Governor Masayoshi Amamiya told a Reuters Newsmaker event today that the baseline scenario is that “economy will continue to expand moderately and gradually push up inflation to our target”.

He added that “The output gap is still positive. More companies are raising prices. If this trend continues, people’s perception of future price moves will change. At present, the momentum (for inflation to hit 2%) is sustained.”

Though, he also warned of various downside risks. And he emphasized “if such risks hurt the economy’s momentum to achieve our price target, we won’t hesitate to consider easing more.”

GBP/USD Mid-Day Outlook

Daily Pivots: (S1) 1.2567; (P) 1.2579; (R1) 1.2591; More….

GBP/USD drops sharply today and intraday bias stays on the downside for 1.2506 support. Firm break there will resume larger decline from 1.3381 to 1.2391 low. On the upside, above 1.2587 minor resistance will extend the consolidation from 1.2506 with another rise. But upside should be limited by 38.2% retracement of 1.3381 to 1.2506 at 1.2840 to bring fall resumption eventually.

In the bigger picture, down trend from 1.4376 (2018 high) is still in progress. Break of 1.2391 would target a test on 1.1946 long term bottom (2016 low). For now, we don’t expect a firm break there yet. Hence, focus will be on bottoming signal as it approaches 1.1946. In any case, medium term outlook will stay bearish as long as 1.3381 resistance holds, in case of strong rebound.

Economic Indicators Update

GMT Ccy Events Actual Forecast Previous Revised
22:30 AUD AiG Performance of Construction Index Jun 43 40.4
23:30 JPY Overall Household Spending Y/Y May 4.00% 1.40% 1.30%
05:00 JPY Leading Index CI May P 95.2 95.3 95.9
06:00 EUR German Factory Orders M/M May -2.20% -0.10% 0.30% 0.40%
07:00 CHF Foreign Currency Reserves (CHF) Jun 759B 760B 759B
12:30 CAD Net Change in Employment Jun -2.2K 10.0K 27.7K
12:30 CAD Unemployment Rate Jun 5.50% 5.50% 5.40%
12:30 USD Change in Non-farm Payrolls Jun 224K 164K 75K 72K
12:30 USD Unemployment Rate Jun 3.70% 3.60% 3.60%
12:30 USD Average Hourly Earnings M/M Jun 0.20% 0.30% 0.20% 0.30%
14:00 CAD Ivey PMI Jun 56.2 55.9

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