Friday’s Non-Farm Payrolls might be a bit of a damp squid for USD
The US releases its all-important March non-farm payrolls (NFP) this Friday and unless the numbers are wildly different to expectations they probably won’t have much impact on USD as the Federal Reserve isn’t expected to hike interest rates until June.
The really big event this week and likely to over-shadow NFP is the meeting between US President Donald Trump and his Chinese counterpart Xi Jinping on Thursday-Friday. The markets will look for signs of US-China reconciliation over trade issues or a potential worsening of relations in what are likely to be difficult talks.
Coming back to NFP. The April and May numbers will likely be more important to the Fed than the March numbers. The market is looking for a 180,000-200,000 gain with hourly wages up by an annualised 2.4-3.6%. February’s NFP was 235,000 with hourly wages rising 2.8% annualised. Admittedly, if the wages component is particularly weak or very strong that could influence USD. If strong wage rises become an entrenched trend, then the Fed could end up doing a total of four rate hikes this year rather than the guided three.
In a prelude to NFP, the Fed releases its FOMC minutes on Wednesday and there will also be ADP non-farm payroll numbers, which have in recent times become better correlated with the main NFP number.
However, the Fed has been quite dovish recently and still seems quite relaxed about the low unemployment rate now well below 5% at around 4.7%. That dovishness might in part reflect the difficulties President Donald Trump is having with acting through on his election promises. His much-mooted tax reforms are likely to prove challenging and as for the promised $1tn infrastructure spend, that may now not materialise until much later if at all.
Under this scenario, the US economy may simply chug along at 2.0-2.5% rather than the 4.0% Trump is aiming for and only likely to be possible with big tax cuts and a massive fiscal stimulus accompanied by a soaring budget deficit, which would be severely opposed by many Republicans in Congress who are fiscal hawks.
TECHNICAL ANALYSIS: This week could be decisive for EUR/USD
EUR/USD managed to punch through resistance around 1.0800 and even got as far as 1.0906 – its highest point this year with the 200-day moving average (dark blue) creating resistance. As the pair were not able to build escape velocity they were soon dragged all the way back down to lows of 1.0651 and below the 50-day moving average.
An early test as to whether EUR/USD are starting to turn bearish is whether support at 1.0603 is broken and if so it would pave the way for support around 1.0500 to be challenged. If that were the case, then the EUR/USD rally might be over. This week’s action could therefore be quite decisive in terms of direction over the rest of April.
Support is at 1.0603, 1.0540, 1.0507 and 1.0495 and resistance at 1.0734, 1.0783, 1.0812-5
By Justin Pugsley, Markets Analyst, MahiFX