Dollar Ignores Strong Non-Farm Payrolls, Soldoff on Aggressive Fed Cut Pricing

Market overviews

Both US and Canadian Dollar continue to be the weakest one for today despite stronger than expected job data. In particular, markets are aggressively pricing in another deep rate cut by Fed on March 18, as Wuhan coronavirus pandemic worsens. At certain point today, fed fund futures were pricing in more than 80% change of -75bps Fed cut to 0.25-0.50%. After non-farm payroll report, such aggressive pricing recedes mildly. But futures are still implying 55% odd of another -50bps cut.

Technically, EUR/USD’s strong break of 1.1239 resistance is the biggest development today. It should confirm medium term bottoming at 1.0777. Further rally should be seen to 1.1456 fibonacci level next. Rejections from there would reveal whether EUR/USD is in corrective rise, or in bullish medium term reversal.

Global stocks also tumble broadly with major European indices trading down more than -3% at the time of writing. FTSE is down -3.27%. DAX is down -3.37%. CAC is down -3.84%. German 10-year yield is down -0.034 at -0.720. Earlier in Asia, Nikkei dropped -2.72%. Hong Kong HSI dropped -2.32%. China Shanghai SSE dropped -1.21%. Singapore Strait Times dropped -1.90%. Japan 10-year JGB yield dropped -0.349 to -0.146. Gold hits new 7-year high but cannot push through 1700 handle yet. Both US 10-year yield and 30-year yield hit new record lows.

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Global coronavirus cases, including China, surged past 100k to 100598, with 3410 deaths. Here are some stats: South Korea (6593 cases, 42 deaths), Iran (4646 cases, 124 deaths), Italy (3858 cases, 148 deaths), Germany (578 cases), France (577 cases, 9 deaths), Spain (382 cases, 5 deaths), Japan (381 cases, 6 deaths), USA (233 cases, 14 deaths), Swiss (185 cases, 1 death), Singapore (130 cases), Netherlands (128 cases, 1 death), UK (116 cases, 1 death), Belgium (109 cases), Norway (108 cases), Hong Kong (105 cases, 2 deaths), Sweden (101 cases). Situation in Europe remain very worrying.

US non-farm payroll grew 273k, wage growth matched expectations

US non-farm payrolls rose 273k in February, well above expectation of 178k. Unemployment rate dropped to 3.5%, down from 3.6%, as it continues to gyrate between 3.5-3.6% for the past six months. Participation rate remained unchanged at 63.4%. Average hourly earnings rose 0.3% mom, matched expectations. Also from the US, trade deficit narrowed to USD -45.3B in January versus expectation of USD -48.8B.

Canada employment grew 30.3k in February, above expectation of 10.5k. Unemployment rose to 5.6%, up from 5.5%, matched expectations. Trade deficit widened to CAD -1.47B in January, versus expectation of CAD -0.83B.

EU Hogan hopeful of a mini trade deal with US in coming weeks

EU Trade Commissioner Phil Hogan said there were still difficult issues to overcome in trade negotiations with US. And, “there is a long list (of issues) on both sides that have been outstanding for many, many years. There is no scientific basis for any of these impediments.”

He pointed out, “clearly there are regulations in respect of food safety and those issues, pathogen treatments, that we will not be in a position to change. Equally we are not asking Congress to change their regulations in some of the asks we are making of the United States.”

Though, he’s still hopeful of reaching a mini trade deal with the US in the coming weeks. EU is still aiming to see industrial tariffs reduction as an outcome.

German factory orders rose 5.5%, strongest since 2014

Germany factory orders rose 5.5% mom in January well above expectation of 1.5% mom. It’s also the biggest monthly rise since July 2014. However, over the year, factory orders dropped -1.4% mom.

Looking at some details, domestic orders rose 1.3% mom while foreign orders rose 10.5% mom. New orders from Eurozone were up 15.1% mom. New orders from other countries rose 7.8% mom.

Also released in European session, Italy retail sales rose 1.4% yoy in January. France trade deficit widened to EUR -5.9B in January. Swiss foreign currency reserves rose to CHF 769B in February.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.1160; (P) 1.1202; (R1) 1.1285; More…

EUR/USD surges to as high as 1.1340 so far today. The strong break of 1.1239 resistance confirms medium term bottoming at 1.0777. Intraday bias stays on the upside for 1.1456 fibonacci level next. Reactions from there would reveal if there is medium term bullish reversal. On the downside, though, break of 1.1095 minor support is needed to indicate short term topping. Otherwise, near term outlook will remain bullish in case of recovery.

In the bigger picture, a medium term bottom should have formed at 1.0777 after drawing support from 78.6% retracement of 1.0339 (2017 low) to 1.2555 at 1.0813. Sustained break of 38.2% retracement of 1.2555 to 1.0777 at 1.1456 will raise the chance of medium term bullish reversal and target 61.8% retracement at 1.1876. Rejection by 1.1456 will suggests that price action from 1.0777 are merely a correction. And another fall below 1.0777 low would be seen at a later stage.

Economic Indicators Update

GMT Ccy Events Actual Forecast Previous Revised
21:30 AUD AiG Performance of Services Index Feb 47 47.4
23:30 JPY Labor Cash Earnings Y/Y Jan 1.50% 0.20% 0.00% -0.20%
23:30 JPY Overall Household Spending Y/Y Jan -3.90% -4.00% -4.80%
00:30 AUD Retail Sales M/M Jan -0.30% 0.00% -0.50%
05:00 JPY Leading Economic Index Jan P 90.3 91.9 91.6
07:00 EUR Germany Factory Orders M/M Jan 5.50% 1.50% -2.10%
07:45 EUR France Trade Balance (EUR) Jan -5.9B -4.9B -4.1B -3.7B
08:00 CHF Foreign Currency Reserves (CHF) Feb 769B 764B
09:00 EUR Italy Retail Sales M/M Jan 0.00% 0.30% 0.50%
09:00 Italy Retail Sales n.s.a Y/Y Jan 1.40% 0.90% 0.80%
13:30 USD Nonfarm Payrolls Feb 273K 178K 225K 273K
13:30 USD Unemployment Rate Feb 3.50% 3.60% 3.60%
13:30 USD Average Hourly Earnings M/M Feb 0.30% 0.30% 0.20%
13:30 USD Trade Balance (USD) Jan -45.3B -48.8B -48.9B -48.6B
13:30 CAD Net Change in Employment Feb 30.3K 10.5K 34.5K
13:30 CAD Unemployment Rate Feb 5.60% 5.60% 5.50%
13:30 CAD International Merchandise Trade (CAD) Jan -1.47B -0.83B -0.4B -0.7B
15:00 USD Wholesale Inventories Jan F -0.20% -0.20%
15:00 CAD Ivey PMI Feb 55.2 57.3