More pressure on the economic front is in the air. The ECB’s Draghi as much as said so, despite his seeming unwillingness to push for more rate cuts. So on we go to tomorrow’s monthly U.S. Payroll Report. Why so much attention to this one report we’re at a bit of a loss lately. When the last one was a big wet blanket all we saw was a steady string of bank economists march out and tell us the number weren’t that bad, and please don’t pay attention to this one off event.
The facts as we se them are that the news, while far from the debacle in 2008, are coming in with a negative slant. This can’t be looking good to a system that requires growth and a lot more jobs than what has been produced so far. Add I the stress that the Eurozone’s recession will likely cause, and there are some real reasons to worry out there.
Currencies: 03May With the approach of tomorrow’s monthly US Payroll Report, lack of directional impetus is afoot. Our view is that foreign data has been negative and US data has been uneven with a negative bias.
The ECB decided to leave rates as it for now but states they remain supportive, even in the face of a deteriorating economic environment. US data was initially supportive with a materially lower Jobless Claims number. However, this was tempered somewhat by a falling productivity number. Later on, the ISM non-Manufacturing disappointed. Additionally, New Zealand experienced worse than expected jobs data.
More of what we said earlier, uneven, negatively slanted data.
The effect is the major currencies are not moving much in early action.
The back and forth action featured throughout this year tells us that our generally “middling” Overbought/Oversold indicators (after getting quite toasty over the last couple weeks) sets the currency sector in a vulnerable spot versus the US Dollar. More downside is definitely available.
We remind readers of our recent macro notes:
“Despite the true comments that the Euro is about to experience its first monthly decline since December, in reality it has gone sideways since the bounce off January lows. One wonders, with Spain seen as falling into its 2nd recession in 3 years, if this will change? What could be the expected effect on the risk on/off nature of trading we have seen over the past 6 months? Is the US really a bastion of safety or merely the last place left to hide? How safe can the US really be when one considers the data we see as indicating a serious slowing of the “growth” story? Action should start waning as the week progresses as the US Monthly Payroll report is coming on Friday.
The real question is what is the next move by the “authorities” to stave off collapse? QE 3 has been floated as a possibility by the US Fed, and ECB functionaries have been using their LTRO and other tools to deal with a steadily growing sea of European sovereign red ink.
This further supports our common theme of the push-pull of the European and American debt/economic situations trading places on the front burner.
Risk-off trading will still tend to favor the USD and Japanese Yen.”
Aussie: 03May Our falling Rate of Change may be a session or two away from pulling our Momentum indicator negative (on a continuation basis). Longer term, it appears the Aussie may be looking at another material move lower. With the RBA dropping their overnight funding rates by 50 BP, this is not surprising.
Looking at the chart, it looks like a bearish flag is developing and the Aussie is poised to break out to the downside.
If this plays out, look for a move lower of between .0500-.0650. The flag as we’ve drawn it would break out just below 1.02, which would target an area from .9550-.9700. There are a number of sell-off lows in that area to provide support.
Our technicals point to likely lower action with Trend having turned lower, Momentum and ROC about to, and our RSI headed down. Our support at the –2 STD below the 21-day moving average comes n at near 1.0165.
We see resistance at Friday’s settlement and the +2STD (1.0400) above the 21-day moving average. This level also traces back to mid-March’s decline. We emphasize the fact that there has been exactly one settlement and only 2 probes above this level since.
Stay attuned to directional indications for global trade, especially out of Asia, as that is what Australia’s economy depends on as a commodity exporter.
Seasonal Snapshot (cash): The 5-year pattern has a negative bias until 26May.
The 15&30yr patterns chop higher until 10May, then both fall out of bed throughout the rest of the month.
British: 02May Sterling is exhibiting some evidence of consolidation, as several month highs and general Euro-zone weakness are digested. General peaking action for the past week or so has he Pound pressuring the 1.6150 support level. This traces back to mid-late April and the move higher and has shown as reliable support since bouncing on 4/27. If this sets up as a consolidation before moving higher, the developing chart would target a move higher by approximately 0.045-0.050 from the break out. If it falls further, look for support near 1.60
The 200-day moving average (1.5841) continues to exhibit generally flat behavior.
Seasonal Snapshot (cash): All three patterns have a quite negative bias until the end of May.
Canadian: 03May Very modest movement today as the Loonie waits for tomorrow’s US Jobs report. Recent action indicates either a consolidation before more action higher or a move to a more negative bias.
Trend is still pointing higher but Momentum has been decelerating for about a week. RSI has been falling for about the same week period bring its level to close to the 50 level.
1.01 presents a formidable support level going back to 4/17. This level acts as a sort of inflection point.
A sustained move below targets the –2 STD (0.9930) and the 200-day moving average (0.9955).
If the global economic outlook improves, the Loonie should be able to sustain this break out above this range. Speculation that the BOC will remove any accommodation would also be a positive factor, although their next scheduled announcement is not until 05June.
Seasonal Snapshot (cash): All three patterns have a choppy, negative bias until 26May. The 30yr’s is more protracted than its shorter-term counterparts.
Dollar Index: 03May After a modest early rally, action has fallen back into a consolidating Doji. Likely action will be near this level until after tomorrow’s US Payroll report.
Technicals point to a market shifting to a less negative profile.
We see resistance at the falling 21-day moving average near 79.53. Interim above there near 79.80 and then the psychological 80.00. We see support at 79.15, 78.90, and then 78.65.
Watch for any evidence the Dollar is not the safe haven under crisis market conditions. This would change existing assumptions dramatically.
Seasonal Snapshot: All three patterns peak in mid-May. The 15&30yr patterns then consolidate in choppy fashion until the end of the month. The 5yr declines during this period.
Euro-FX: 03May The action for several months can be characterized as several weeks of building Euro strength followed by several days of violent falling action. Each move lower has been preceded by a turn in our Momentum indicator. The last several days has appeared to be setting up much the same. The support level for this action has been the 1.3000-1.3050 area.
With this said, the chart patterns set up for another such move and this would indicate a move lower by approximately 0.100-0.0150.
Our longer-term view, however, has the currency in a large consolidation range, specifically into a symmetrical triangle that extends back to early Feb, bound by 1.3000-1.3300. Our best advice is to trade the range and keep risk controls tight. With Volatility low, you can bracket your range with calls and puts and trade with them as your risk controls. Seasonal Snapshot: All three patterns decline until mid-May, when the 5&15yr patterns consolidate. The 30yr pushes lower until the end of June.
Yen: 03May The Yen retains its safe-haven status as weak global economic news casts a bit of a pall over risk-on markets. Since peaking Tuesday, the action has been less positive and more consolidating. On a positive note, the action is being supported at the old 1.2460 resistance. The question is now before the market of when does the BOJ come back to the table as the Yen is rising to levels the BOJ does not want to see.
With the BOJ on record as looking to weaken the Yen, when does it intervene?
Seasonal Snapshot: Modest weakness in all three patterns will turn positive for a week on 1May, then consolidation into the first part of June.
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