More USD strength in nervous market. Payrolls boost CAD.

The USD was strong again today as nervy market continues to fret rampant political uncertainty in Europe and weak Chinese numbers. Meanwhile, CAD got a boost on another very strong payrolls number in April.

It’s another nervy day, a day that really started late yesterday with the disclosure of large trading losses at JP Morgan in credit derivatives, particularly as JP Morgan is a dominant presence in the derivatives market. Then overnight, the weak data out of China (weakest in years in industrial production) weighed on sentiment, while in Europe, there were no signs of improvement in the peripheral bond spreads, as uncertainty continues over whether Greece will be able to form a government. On the Greece issue, have a read of Evans-Pritchard’s latest piece over at the Telegraph, which shows how tempting it will eventually be for Greece to devalue once the pain of its current course gets too great.

Odds and ends
Oh, what a difference a month makes for UK PPI numbers, as falling oil prices saw the index fall sharply to a 1.2% YoY rate vs. +5.8% last month and not far from +20% last year – this could give the BoE some pause in worrying about inflation levels at next Wednesday’s quarterly inflation report. The PPI Output number was higher than expected at 3.3%, but still dropped to 3.3% YoY, the lowest level since the end of 2009 and down from over 6% less than a year ago. Perhaps this is one of the drivers pushing GBP lower against both the single currency and the greenback in today’s trade.

Canada saw another very strong employment report in terms of the payrolls growth, but the participation rate also rose some +0.2%, meaning that the overall unemployment rate actually rose to 7.3% from March’s 7.2%. The short end of the Canadian yield curve jumped higher in response (2 year swaps were up 6-7 bps within half an hour of the report) and USDCAD fell, though that fall was partially padded by the general risk off tone to markets. While the CAD data is impressive, risk aversion and crude oil are still a significant risk for the Loonie beyond an adjustment to the good data in the next couple of sessions. The report came as USDCAD symbolically poked at the 1.0050 area 200-day moving average.
The US PPI data showed the headline data dropping to the lowest level since late 2009 and the core data finally dropped a bit relative to its recent peak at 3% YoY.

Looking ahead
Market sentiment certainly looks fragile as we head into more uncertainty next week as ad hoc risks abound. Next week’s main US data points include the CPI, the Empire Manufacturing Survey and the Retail Sales numbers all on Tuesday. Midweek we have the BoE quarterly inflation report and the minutes of the most recent FOMC meeting.

So far so good this week for the USD bulls, as a break is a break unless it’s fake at the close of today. A really long-term look at the Aussie chart shows where its potential could take it in the event the current market nervousness develops into an all-out rout. The key resistance for the latest swing and the trend remains the 1.0230 early April lows.

Chart: AUDUSD
The long-long term perspective on AUDUSD shows how far above its historic range it remains and one has to wonder what its downside volatility potential may be if a fat tail environment develops here, given the previous complacency and the idea that the central banks are always at the ready with a bailout. There’s an interesting trendline in play, as indicated on the chart, though the last time the long term trendlne gave way, the pair didn’t stay lower for very long. The big level seems to be the major support in the 0.9400 area, the approximate 2009 high and 2011 low.

Economic Data Highlights

• China Apr. Consumer Price Index out at +3.4% YoY as expected and vs. +3.6% in Mar.
• China Apr. Producer Price Index out at -0.7% YoY vs. -0.5% expected and vs. -0.3% in Mar.
• China Apr. Industrial Production out at +9.3% YoY vs. +12.2% expected and +11.9% in Mar.
• China Apr. Retail Sales out at +14.1% YoY vs. +15.1% expected and +15.2% in Mar.
• UK Apr. PPI Input out at -1.5% MoM and +1.2% YoY vs. -0.9%/+2.1% expected, respectively and vs. +5.6% 
• UK Apr. PPI Output out at +0.7% MoM and +3.3% YoY vs. +0.4%/+2.9% expected, respectively and vs. +3.7% YoY in Mar.
• UK Apr. PPI Output Core out at +0.6% MoM and +2.3% YoY vs. +0.2%/+1.9% expected, respectively and vs. +2.5% YoY in Mar.
• Canada Apr. Unemployment Rate out at 7.3% as expected and vs.7.2% in Mar.
• Canada Apr. Net Change in Employment out at +58.2k vs. +10k expected and +82.3k in Mar.
• US Apr. PPI out at -0.2% MoM and +1.9% YoY vs. 0.0%/+2.1% expected, respectively and vs. +2.8% YoY in Mar.
• US Apr. PPI ex Food and Energy out at +0.2% MoM and +2.7% YoY vs. +0.2%/+2.8% expected, respectively and vs. +2.7% YoY in Mar.
• US May preliminary University of Michigan Confidence out at 77.8 vs. 76.0 expected and 76.4 in Apr.

Economic Data Highlights (all times GMT)

• New Zealand Apr. Performance of Services Index (Sun 2230)
• New Zealand Q1 Retail Sales (Sun 2245)
• Japan Apr. Domestic CGPI (Sun 2350)
• Australia Mar. Home Loans (Mon 0130)
• Australia RBA’s Lowe to Speak (Mon 0225)