It’s Friday, it’s NFP day

Overnight Headlines

*USD dipped on improving risk sentiment

*US equities surged higher with better-than-expected US jobless figures

*Gold breaks north to near three-month highs

USD found resistance at 91.32 too difficult to handle once again and the release of the best US weekly initial jobless claims data since the crisis began was a good enough reason to jump into more risky assets and push the greenback back to three-day lows. EUR/USD has bounced off the key 1.20 level while USD/JPY is testing 109.

US equities were propelled up by the better jobs numbers with claims coming in at 498k compared with 590k in the prior week. A whippy session saw stocks bounce back and forth before closing on their highs. Value continues to outperform growth with some parts of the latter having sold off quite sharply in recent sessions. Optimism is continuing with Asian markets higher and European bourses expected to open in the green.

Market Thoughts – BoE confuse, Fed getting concerned

It’s been an eventful “communications” week for policymakers shall we say! Earlier in the week, US Treasury Secretary Yellen had to backtrack on her comments about interest rates rising to make sure the US economy didn’t overheat. This had initially caused quite a sharp selloff in equities, particularly in the tech sector.

Then yesterday saw the turn of the Bank of England trying desperately to refrain from using the word “taper”, to describe their “taper” of bond purchases amid recovery optimism. Further upgrades to growth forecasts see the MPC expecting the economy to possibly exceed its pre-virus level later in the year, but just don’t mention the word “taper” in this positivity. The next step will be any clues to further reductions in bond purchases alongside rate moves.

There was no mistaking the Fed’s words in its semi-annual report which stated that some asset valuations are “elevated relative to historical norms” and “may be vulnerable to significant declines should risk appetite fail”. Pretty strong words from the world’s most important central bank.

Chart of the Day – Dollar to struggle even with decent data?

This week’s market highlight is the US jobs report for April where consensus look for a one-million gain. Increasing reports of labour shortages in some sectors has one bank predicting an increase of 2.1million jobs. Goldman Sachs forecast the unemployment rate falling to 5.5% to reflect rapid job gains partially offset by an expected rise on the participation rate. This rate is worth keeping an eye on as the Fed wants to see people pulled back into the workforce. Equally, the FOMC has pledged to keep its zero rates policy and other easing measures in place until the labour market is strong and inflation higher.

Normally the market knee jerks to a +/- 200k miss but it seems the dollar will move more on a big miss, unless we see a blowout report. In truth, the Fed wants to see a series of 1 million job gains before it will contemplate moving its policy dial.

USD/CHF is at an interesting juncture, especially if the dollar goes lower. The daily trend structure is bearish, and the pair is sitting on its 100-day and 200-day SMA which is just around the April lows. Next support is at 0.9045 where bulls failed initially in February last year and then around the 0.90 figure from last year’s summer lows. Prices will need to get above this week’s high at 0.9165 to arrest the downtrend.

Jamie DuttaAnalyst / Trader

"With extensive experience as a full time trader and financial market commentator, I have worked as a trader in top tier investment banks and trading houses, including Morgan Stanley and GAIN Capital trading Forex, Index derivatives. and Bonds. I combine technical analysis with a deep fundamental knowledge to identify trade set-ups. My real life experience allows me to break down the complexities of financial jargon and trading. This means everyone can better understand the compelling forces of greed and fear which are realised every day in countless ways across markets."

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