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Dollar Back in Control ahead of NFP, Risk Aversion Back

Dollar is back in control as markets turned back into risk-off mode, just a day after the rallies triggered by Fed Chair Jerome Powell’s comments. Investors are apparently not too convinced by the ruling out of 75bps hike after a second thought. Focuses will turn to non-farm payroll report today, which should prompt even more volatility.

Staying in the current markets, Aussie is still the strongest one for the week, followed by Canadian. But both are starting to look vulnerable against the third-placed Dollar. Sterling is the worst performing one after BoE put stagflation into perspective. Swiss Franc is also weak followed by Kiwi. Yen and Euro are mixed for now.

Technically, attention will be on whether Dollar would finally break out of range against Euro and Yen today. Levels to watch are 1.0470 support in EUR/USD and 131.24 resistance in USD/JPY. Firm break of theses levels should confirm the underlying broad-based strength of the greenback.

In Asia, at the time of writing, Nikkei is up 0.58%. Hong Kong HSI is down -3.65%. China Shanghai SSE is down -2.18%. Singapore Strait Times is down -1.22%. Japan 10-year JGB yield is up 0.0143 at 0.244. Overnight, DOW dropped -3.12%. S&P 500 dropped -3.56%. NASDAQ dropped -4.99%. 10-year yield rose 0.149 to close at 3.066

RBA SoMP: 2022 GDP forecasts downgraded to 4.5%, CPI raised to 6%

In the Statement on Monetary Policy, RBA reiterated that a further lift in interest rates is required over the period ahead. Also, the Board will continue to closely monitor the incoming information and evolving balance of risks as it assesses the timing and extent of future interest rate increases

In the new economic projections:

  • 2022 GDP growth forecast was downgraded from 5.50% to 4.50%.
  • 2023 GDP growth was upgraded from 2.50% to 2.75%.
  • 2022 year-end headline CPI forecast was raised from 3.25% to 6%.
  • 2023 year-end CPI headline forecast was raised from 2.75% to 3.25%.
  • 2022 year-end trimmed mean CPI was raised from 2.75% to 4.75%.
  • 2023 year-end trimmed mean CPI was raised from 2.75% to 3.25%.
  • 2022 year-end unemployment rate was unchanged at 3.75%.
  • 2023 year-end unemployment rate was us lower from 3.75% to 3.50%.

Also from Australia, AiG Performance of Services Index rose from 56.2 to 57.8 in April.

Bitcoin accelerating down towards 33k low, follow risk-off sentiment

Bitcoin continued to gyrate lower this week and accelerated to as low as 35565 overnight. The move came with broad based risk-off selling in the US markets. Technically, the fall is seen as continuation of the decline from 48226, and outlook will stay bearish as long as 40014 resistance holds. Next near term target is 33000 low.

Structurally, rebound from 33000 to 48226 is seen as a three wave corrective pattern. The current stay below 55 day EMA is also a medium term bearish sign. Decline from 48226 is likely the third leg of the whole down trend from 68986 low. Current downside momentum doesn’t warrant a strong break of 33000 yet. But in that happens, bitcoin could easily falls through 30k handle to 61.8% projection of 68986 to 33000 from 48226 at 25986.

NFP in focus as 10-yr yield hit 3.1%

Focus will turn to US non-farm payroll report today. Markets are expecting 400k job growth in April. Unemployment rate is expected to be unchanged at 3.6%. Average hourly earnings is expected to stay strong at 0.4% mom.

Looking at related data, ISM manufacturing employment dropped sharply from 56.3 to 50.9, barely in expansion. ISM services employment dropped from 54.0 to 49.5, back in contraction. ADP report showed only 247k private job growth. Four-week moving average of initial claims also ticked up from 178k to 188k.

The figures on wages growth would be the most important ones to watch. Fed Chairman Jerome Powell talked down the prospect of a 75bps rate hike earlier this week. But the markets seemed not buying into this rhetoric after second thoughts.

10-year yield rose 0.149 to close at 3.066 overnight, after hitting as high as 3.108. Recent up trend is still in force towards 3.248 long term resistance level (2018 high). The reaction to NFP from 10-year yield would provide the guide to Dollar’s next move, in particular against Yen.

Elsewhere

Japan Tokyo CPI core rose from 0.8% to 1.9% yoy in April, above expectation of 1.8% yoy. Monetary base rose 6.6% yoy in April, below expectation of 8.2.% yoy.

Swiss unemployment rate and foreign current reserves, Germany industrial production, Italy retail sales, and UK construction PMI will be released in European session.

Later in the day, in addition to US NFP, Canada will also release employment and Ivey PMI.

USD/JPY Daily Outlook

Daily Pivots: (S1) 129.79; (P) 130.04; (R1) 130.38; More…

USD/JPY is still staying in range below 131.24 and intraday bias remains neutral. Also, near term outlook stays bullish with 126.91 support intact and further rally is expected. On the upside, break of 131.24 will resume recent up trend to 261.8% projection of 109.11 to 116.34 from 114.40 at 133.26. However, considering bearish divergence condition in 4 hour MACD, break of 126.91 will confirm short term topping and turn bias back to the downside for 121.27/125.09 support zone.

In the bigger picture, current rally is seen as part of the long term up trend form 75.56 (2011 low). Sustained trading above 61.8% projection of 75.56 (2011 low) to 125.85 (2015 high) from 98.97 at 130.04 will pave the way to 100% projection at 149.26, which is close to 147.68 (1998 high). For now, this will remain the favored case as long as 121.27 support holds.

Economic Indicators Update

GMTCcyEventsActualForecastPreviousRevised
22:30AUDAiG Performance of Services Index Apr57.856.2
23:30JPYTokyo CPI Core Y/Y Apr1.90%1.80%0.80%
23:50JPYMonetary Base Y/Y Apr6.60%8.20%7.90%
01:30AUDRBA Monetary Policy Statement
05:45CHFUnemployment Rate Apr2.20%2.20%
06:00EURGermany Industrial Production M/M Mar-1.30%0.20%
07:00CHFForeign Currency Reserves (CHF) Apr911B
08:00EURItaly Retail Sales M/M Mar0.50%0.70%
08:30GBPConstruction PMI Apr5859.1
12:30USDNonfarm Payrolls Apr400K431K
12:30USDUnemployment Rate Apr3.60%3.60%
12:30USDAverage Hourly Earnings M/M Apr0.40%0.40%
12:30CADNet Change in Employment Apr39.5K72.5K
12:30CADUnemployment Rate Apr5.20%5.30%
14:00CADIvey PMI Apr7074.2
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