Dollar Drops Broadly Following NFP Disappointment

Market overviews

Dollar drops broadly in early US session after much smaller than expected non-farm payroll job growth, even though unemployment dipped notably. Canadian Dollar is some what pressured today after larger than expected job losses. But Yen is the one following the greenback as second weakest. Australian Dollar and Euro are trying to regain some grounds against Dollar.

Technically, EUR/USD is back above a medium term channel support, and we’d see if it could extend the rebound to revive near term bullishness. GBP/USD would be another focus before weekly close, to see if it could break through 1.3758 resistance to resume larger up trend.

In Europe, currently, FTSE is down -0.09%. DAX is up 0.16%. CAC is up 1.02%. Germany 10-year yield is up 0.035 at -0.416. Earlier in Asia, Nikkei rose 1.54%. Hong Kong HSI rose 0.60%. China Shanghai SSE dropped -0.16%. Singapore Strait Times rose 0.05%. Japan 10-year JGB yield rose 0.0002 to 0.060.

US non-farm payroll rose only 49k in Jan, but unemployment rate dropped to 6.3%

US non-farm payroll employment rose only 49k in January, well below expectation of 85k. “Notable job gains in professional and business services and in both public and private education were offset by losses in leisure and hospitality, in retail trade, in health care, and in transportation and warehousing.”

However, unemployment rate dropped to 6.3%, down from 6.7%, much better than expectation of 6.7%. Number of unemployed persons dropped to 10.1 million. Participation rate was about unchanged at 61.4%. Average hourly earnings rose 0.2% mom, below expectation of 0.3% mom.

Also released, trade deficit narrowed to USD -66.6B in December.

Canada employment dropped -213k in Jan, unemployment rate surged to 9.4%

Canada employment dropped -213k, or -2.12% in January, much worse than expectation of -43.5k. “Losses were entirely in part-time work and were concentrated in the Quebec and Ontario retail trade sectors.” Unemployment rate surged to 9.4%, well above expectation of 8.9%. That’s also the highest level since August 2020.

Also from Canada, trade deficit narrowed to CAD -1.7B in December, smaller than expectation of CAD -3.0B.

Released in European session, Italy retail sales rose 2.5% mom in December versus expectation of 3.2% mom. Swiss foreign currency reserves rose slightly to CHF 896B in January. France trade deficit narrowed to EUR -3.4B in December. Germany factory orders dropped -1.9% mom in December.

BoE Broadbent: Recovery will be linked to vaccine rollout and people’s cautiousness

BoE Deputy Governor Ben Broadbent said the strong economic growth this year will be a “function of lower starting point last year”. Recovery will be linked to vaccine rollouts and how cautious people are going forward. Nevertheless, unemployment rate will very like go out when furlough scheme ends. Also, tight international borders would be negative for both the supply and demand side of the economy.

He also noted that it’s not unusual for banks to need time to prepare for negative interest rates. ECB had similar preparation time for negative rates, even though the UK is in a difference place to ECB in 2014 regarding inflation. “We want to ensure that at the very least it was not the technical feasibility of negative interest rates that might prevent their use. There are deeper issues … about their effectiveness, but the technical feasibility should not be something that stands in the way of them,” he added.

RBA Lowe: Interest rates to be low for quite a while yet

RBA Governor Philip Lowe told a parliamentary committee that the central bank was committed to do “everything it reasonably can” to to push the unemployment rate lower and drive wages growth higher. However, even in the most optimistic scenario, inflation won’t be back to its target band before 2023.

“The cash rate will be maintained at 10 basis points for as long as is necessary,” Lowe added. “Interest rates are going to be low for quite a while yet.”

Australia AiG services rose to 54.2, strongest since Nov 2019

Australia AiG Performance of Services rose to 54.2 in February, up from 52.9, highest since November 2019. Ai Group Chief Executive, Innes Willox, said: “With a considerable way to go before a full recovery can be claimed, the more convincing lift in new orders is an encouraging pointer to continuing recovery over coming months. Sales also grew strongly – in part reflecting a release of pent-up demand and higher levels of confidence and employment as the sector continued to recover.”

Also released, retail sales dropped -4.1% yoy in December.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.1932; (P) 1.1988; (R1) 1.2017; More…

EUR/USD recovers after hitting 1.1951 and is now back above medium term channel support. Intraday bias is turned neutral first. On the upside, break of 1.2052 support turned resistance will argue that fall from 1.2348 has completed. That would also revive near term bullishness and turn bias back to the upside for 1.2188 resistance first. On the downside, break of 1.1951 will extend the fall to 100% projection of 1.2348 to 1.2052 from 1.2188 at 1.1892 first. Break will target 38.2% retracement of 1.0635 to 1.2348 at 1.1694.

In the bigger picture, rise from 1.0635 is seen as the third leg of the pattern from 1.0339 (2017 low). Further rally could be seen to cluster resistance at 1.2555 next, (38.2% retracement of 1.6039 to 1.0339 at 1.2516). This will remain the favored case as long as 1.1602 support holds. We’d be alerted to topping sign around 1.2516/55. But sustained break there will carry long term bullish implications.

Economic Indicators Update

GMT Ccy Events Actual Forecast Previous Revised
21:30 AUD AiG Performance of Services Dec 54.2 52.9
23:30 JPY Overall Household Spending Y/Y Dec -0.60% -1.50% 1.10%
00:30 AUD Retail Sales M/M Dec -4.10% -4.20%
00:30 AUD RBA Monetary Policy Statement
05:00 JPY Leading Economic Index Dec P 94.9 95.1 96.4 96.1
07:00 EUR Germany Factory Orders M/M Dec -1.90% -1.20% 2.30% 2.70%
07:45 EUR France Trade Balance (EUR) Dec -3.4B -3.6B -3.8B
08:00 CHF Foreign Currency Reserves (CHF) Jan 896B 891B
09:00 EUR Italy Retail Sales M/M Dec 2.50% 3.20% -6.90%
13:30 USD Nonfarm Payrolls Jan 49 K 85K -140K -227K
13:30 USD Unemployment Rate Jan 6.30% 6.70% 6.70%
13:30 USD Average Hourly Earnings M/M Jan 0.20% 0.30% 0.80% 1.00%
13:30 USD Trade Balance (USD) Dec -66.6 B -68.1B -69 B
13:30 CAD Trade Balance (CAD) Dec -1.7B -3.0B -3.3B
13:30 CAD Net Change in Employment Jan -212.8K -43.5K -62.6K -68.2K
13:30 CAD Unemployment Rate Jan 9.40% 8.90% 8.60%
15:00 CAD Ivey PMI Jan 49.5 46.7