The USD rallied again as precious and base metals dropped anew and risk everywhere was distinctly in “off” mode. Then, today brought another negative data shocker in the form of a horrible US weekly jobless claims number. How long will USD ride high on the wave of risk misery?
Ahead of today’s 1230 GMT ECB press conference and US data releases, the USD proved that it is at least one of the flipsides of the Everything Up trade, as crumbling commodity prices and risk aversion in equities (downside) and bonds (upside) boosted the greenback, and the JPY even more so. The Swiss Franc completed the trio of lowest yielders benefitting the most from market developments. And with copper breaking to new lows for the year on high momentum, the Aussie is feeling the most heat, although CAD was giving it’s a run for its money to the downside due to the massive swoon in oil prices.
ECB press conference
Trichet was out with the usual batch of language on the economy, with the mix perhaps a bit more dovish than the market was priced for (we discussed yesterday that Trichet was really going to have to come out bleating about vigilance and second round effects to keep the Euro rally rolling) The pressure is also on the Euro from the very strong bond/bund market and the risk off from the US data. The next interesting technical areas are 1.4640/60 and then all the way down to the 1.4525 area.
Trichet continued to see policy as “accommodative”, said the a Greek restructuring is “not in the cards” (oh, yes it is, Mr. President), that the EuroZone recovery was “confirmed” (??), though he did note that some Euro countries are “lagging behind”. With most of the inflation keepsTrichet up at night coming from commodities prices, and with key commodities like oil falling off a cliff today, this naturally pressures the forward view on ECB expectations, and this in combination with Trichet’s mild performance today have seen the June 2012 Euribor jump some 17 ticks from the day’s lows, providing fodder for the Euro sell-off.
With the Bank of England silent today with no change to its policy announced, all of the movement in the EURGBP cross today was in the favor of the GBP after an ugly construction PMI saw a merciless short squeeze.
Chart: EURUSD
Looking for important support levels, we find 1.4640/60, which was a resistance area on the way up, as was the 1.4525 area somewhat lower.
US initial jobless claims
The jobless claims number crossing the screen this morning was truly awful, as the weekly number jumped yet again, this time all the way up to 474k, far worse than the 410k expected and last week’s already perilous acceleration to 431k and suddenly the worst weekly reading since all the way back in August of last year. And this comes only two months after we saw the lowest claims reading in about two and a half years. This is horrific data and will see expectations building for an ugly reading for the job market in May, and even potential for a bit of downside relative to earlier expectations for tomorrow’s April payrolls report as well.
Odds and ends
New Zealand’s unemployment rate fell in the first quarter, and this was despite a rather strong increase in the participation rate from 67.9% to 68.7%, one of the highest readings in recent years, which represents the opposite trend of the one occurring in the US, where most of the unemployment rate improvement is a statistical development made possible by a shrinking labor force.
Australia’s Building Approvals data appears strong on the surface, though these data points and their subsequent revisions swing all over the place from month to month. For example, Feb’s YoY figure was revised all the way up to -13.3% from -21.8% and, even though the month-on-month increase came in at a whopping +9.1%, the YoY figure drop.
Looking ahead
We talked yesterday in our video about whether the USD is the flipside of risk appetite and it appears from today’s action that the negative correlation is holding. Of course, the question is what happens if the momentum in commodities and equities wears off. This relationship is a critical one for judging the greenback’s potential trajectory.
As we are “going to press”, the bond rally that spiked even further today on the US jobless claims news, has partially reversed course, and this could put some pressure on today’s developments and might help USDJPY and/or USDCHF find a floor intraday if the development deepens. Tomorrow’s US employment report is on tap for tomorrow, of course, and some may be reluctant to let things stretch further here with such an important data point looming in the background.
Be very careful out there.
Economic Data Highlights
- New Zealand Q1 Unemployment Rate fell to 6.6% vs. 6.7% expected and 6.7% in Q4
- Australia Mar. Building Approvals out at +9.1% MoM and -18.1% YoY vs. +5.0%/-25.2% expected, respectively and vs. -13.3% YoY in Feb.
- Australia Mar. Retail Sales out at -0.5% MoM vs. +0.5% expected and +0.8% MoM in Feb.
- China Apr. HSBC Services PMI out at 51.6 vs. 51.7 in Mar.
- Sweden Mar. Service Production out at +0.5% MoM and +5.7% YoY vs. +4.9% YoY expected and +6.7% YoY in Feb.
- UK Apr. PMI Services out at 54.3 vs. 56.0 expected and 57.1 in Mar.
- Germany Mar. Factory Orders fell -4.0% MoM and rose +9.7% YoY vs. +0.4% MoM and +1.9% YoY expected
- UK BoE left interest rate unchanged at 0.50% and Asset Purchase Target Unchanged at 200B
- US May RBC Consumer Outlook Index fell to 42.9 vs. 44.8 in Apr.
- Canada Mar. Building Permits out at +17.2% MoM vs. -2.5% expected and vs. +9.8% in Feb.
- US Q1 Nonfarm Productivity out at +1.6% vs. +1.1% expected and vs. +2.9% in Q4
- US Q1 Unit Labor Costs out at 1.0% vs. +0.8% expected and vs. -1.0% in Q4
- US Weekly Initial Jobless Claims out 474k vs. 410k expected and 431k last week
- US Weekly Continuing Claims out at 3733k vs. 3649k expected and vs. 3659k last week
Upcoming Economic Calendar Highlights (all times GMT)
- US Fed’s Bernanke to Speak at Chicago Fed Banking Conference (1330)
- US Weekly Bloomberg Consumer Comfort Index (1345)
- Canada Apr. Ivey PMI (1400)
- US Fed’s Kocherlakota to Speak on Monetary Policy (1715)
- US Fed’s Kocherlakota at press conference (1915)
- Australia Apr. AiG Performance of Construction Index (2330)
- Australia RBA releases quarterly economic forecasts (0130)