Dallas Federal Reserve Bank President Robert Kaplan noted on Monday that he expects the job growth to be strong in the remainder of the year despite the disappointing April labour market report, as reported by Reuters.

Additional takeaways

“Economic effect of pipeline shutdown will depend on the length of shutdown; for now it’s minimal.”

“Demand from these businesses to hire is greater than what was reflected in April jobs report.”

“If you’ve got strong demand, there are limitations to monetary policy in increasing supply.”

“As we approach substantial further progress, it will be healthy to start talking taper sooner than later.”

“Would be good to discuss the efficacy of bond-buying versus side effects, unintended consequences.”

Market reaction

The greenback remains on the back foot following these remarks and the US Dollar Index was last seen losing 0.16% on the day at 90.08.

San Francisco Federal Reserve Bank President Mary Daly noted on Monday that she was not disappointed at the April jobs report because she had expected there would be volatility, as reported by Reuters.

Additional takeaways

“We are in a transition state, I remain encouraged.”

“We shouldn’t call it a worker shortage, it’s a bottleneck.”

“Labor market is in a state of flux and there are many constraints.”

“Could see inflation above 2% this year but will be transitory.”

“It is not yet time to talk about tapering QE.”

“We are a long way from home; not yet time to thinking about or talking about taper.”

“Fed policy is necessary to get economy back up to speed but we need to make sure financial system is resilient to shocks.”

“We are a long way from normalization.”

Market reaction

The US Dollar Index showed no immediate reaction to these comments and was last seen losing 0.15% on the day at 90.09.

  • US dollar remains under pressure as US yields decline and equity prices rise.
  • EUR/USD back above 1.2150 holds onto recent gains.

The EUR/USD reached at 1.2178, a fresh two-month high, and then pulled back finding support above 1.2150. It is hovering around 1.2160, holding onto the recent important gains.

A weaker US dollar continues to be the key support of the EUR/USD. The DXY is down 0.16%, trading slightly above 90.00. The 10-year yield is around 1.57% after hitting earlier on Monday levels above 1.60% momentarily. Stocks in Wall Street are mixed. The Dow Jones gains 0.78% while the Nasdaq drops 1.20%.

The mixed tone around risk sentiment contributed to limit the rally of the EUR/USD. A break above 1.2170 would target the 1.2190 area that protects 1.2200. On the downside, immediate support stands at 1.2150 followed by 1.2135 (daily low).

The euro is modestly higher on Monday versus the US dollar, up 150 pips from the level it had a week ago. The short-term trend points to the upside.  “Now that EURUSD has “caught up” we, think it may struggle to break higher to a new trading range without fresh catalysts. We also note that spot has realigned with real rate differentials since late last year as FX markets focus more on expected differentials in growth potential”, explained TD Securities analysis in their monthly report.

Technical levels

 

  • Pound extends gains versus euro, remains among top performers
  • EUR/GBP heads to the lowest close since April 6.

The EUR/GBP is having the biggest daily loss in months on Monday as the pound rises sharply across the board following elections in Scotland during the weekend.

Lower odds of a new independence referendum in Scotland after the elections triggered a rally of the pound. After the risk event, traders turn their attention to what the Bank of England announced last week. The pound dropped last week and on Monday is among the top performers.

On Friday, EUR/GBP ended looking at the 0.8700 area. It failed to break it but remains near. After the weekly opening, it started to decline and accelerated on European hours. Recently it bottomed at 0.85952, the lowest level since April 19.

As of writing it trades at 0.8605. the area around 0.8600 is a strong support and a close below would suggest more losses ahead. The next relevant support area is seen at 0.8545/50.

Technical levels

 

The Federal Reserve Bank of New York’s latest Survey of Consumer Expectations revealed on Monday that median inflation expectations at the one-year horizon rose to 3.4% from 3.2%, as reported by Reuters.

Additional takeaways

“Median three-year inflation expectations remained unchanged at 3.1%.”

“Median year-ahead expectations for home prices and rent price growth increased to new series highs for survey launched in 2013.”

“Median one-year ahead expected change in gas prices dropped to 9.2% in April, from a series high of 9.9% in March.”

“Median expected household income growth fell to 2.4% in April from 2.8% in March.”

“Median household spending growth expectations retreated slightly to 4.6% in April, driven by a decline among households with income above $100,000.”

Market reaction

The US Dollar Index showed no immediate reaction to this report and was last seen losing 0.1% on a daily basis at 90.14.

  • GBP/USD touched its highest level since late February at 1.4158.
  • US Dollar Index stays in the negative territory on Monday.
  • Focus shifts to first-quarter GDP report from the UK on Wednesday.

The GBP/USD pair registered strong gains in the second half of the previous week and preserved its bullish momentum on Monday. After touching its highest level since late February at 1.4158 in the early American session on Monday, the pair seems to have gone into a consolidation phase and was last seen rising 1.2% on a daily basis at 1.3143.

GBP continues to ride BoE wave

Last week, the Bank of England (BoE) hinted at a hawkish policy shift by noting it is planning to start tapering its asset purchases. The British pound capitalized on this development and outperformed its rivals. 

Assessing the BoE’s policy statement, “while Governor Bailey cited downside risks to growth, the BoE’s assumptions on excess supply could also prove excessive and therefore inflation over the short-term could prove higher,” said TD Securities analysts. “That would be one example of the markets questioning the BoE’s assumptions and shifting assumptions on BoE action coming sooner. We still see that as plausible in the period when UK GDP growth is set to rebound very strongly.”

On the other hand, the disappointing US jobs reports, which showed that Nonfarm Payrolls rose by 266K in April to miss the market expectation of 978K by a wide margin, the greenback came under heavy selling pressure. With the US Dollar Index pushing lower toward 90.00 at the start of the week, GBP/USD managed to climb higher.

There won’t be any macroeconomic data releases featured in the US economic docket in the remainder of the day. On Wednesday, the first-quarter GDP report, Industrial Production and Goods Trade Balance data from the UK will be looked upon for fresh impetus. Later in the day, investors will be paying close attention to the Consumer Price Index (CPI) data from the US.

Technical levels to watch for

 

The European Central Bank announced on Monday that it bought a net 24.168 billion euros of assets last week as part of its quantitative easing programme, compared to 21.272 billion euros a week earlier, as reported by Reuters.

Additional details

“ECB bought a net 16.291 billion euros of Pandemic Emergency Purchase Programme (PEPP) bonds in the week to May 7 vs 19.008 billion euros a week earlier.”

“ECB bought a net 4.307 billion euros of assets in public sector purchase programme (QE) in the week to May 7 vs 1.918 billion euros a week earlier.”

“ECB bought a net 2.147 billion euros of corporate bonds in week to May 7 vs sales of 168 million euros a week earlier.”

“ECB bought a net 1.300 billion euros of assets in covered bond purchase programme 3 in the week to May 7 vs 518 million euros a week earlier.”

“ECB bought a net 123 million euros of assets in asset-backed securities purchase programme in the week to May 7 vs sales of 4 million euros a week earlier.”

Market reaction

The shared currency showed no immediate reaction to these figures and the EUR/USD pair was last seen posting small daily losses at 1.2157.

Gold is rising for the fourth straight day on Monday. The next hurdle for XAU/USD is located around $1,850 but overbought conditions may trigger a corrective decline, FXStreet’s Eren Sengezer briefs.

See – Gold Price Analysis: XAU/USD bulls come out of the shadows to mull a test of $1850 – DBS Bank

XAU/USD eyes critical resistance at $1,850

“The negative impact of the disappointing US labour market data is still being felt in the markets on Monday with the US Dollar Index slumping to its lowest level since late February near 90.00. Moreover, the benchmark 10-year US T-bond yield stays in the negative territory at 1.579% at the time of press, helping gold continue to find demand.”

“On the daily chart, the Relative Strength Index (RSI) indicator stays near 70. The last time RSI rose above that level back in early January, XAU/USD staged a deep correction and lost more than 5% in less than a week. Although the yellow metal is unlikely to make a similar correction in the current fundamental setup, it could still retreat before the next leg up.”

“On the downside, $1,820 (Fibonacci 50% retracement of the January-March downtrend) could be seen as the first support level ahead of $1,800 (psychological level, 100-day SMA). Only a daily close above the latter could discourage buyers and eliminate the near-term bullish outlook.”

“The initial target is located at $1,850, where the Fibonacci 61.8% retracement level meets the 200-day SMA. If gold manages to rise above that hurdle and turn it into support, it could aim for $1,860 (static level).”

 

  • Wall Street’s main indexes opened mixed on Monday.
  • Energy shares post strong gains on the back of rising crude oil prices.
  • Underperforming technology stocks weigh on Nasdaq at the start of the week.

Major equity indexes in the US started the new week on a mixed tone amid varying performances of major sectors. As of writing, the S&P 500 Index, which touched a record-high of 4,238 on Friday, was down 0.13% at 4,227, the Dow Jones Industrial was rising 0.54% at 34,967 and the Nasdaq Composite was losing 1.28% at 13,544.

Rising crude oil prices provide a boost to energy stocks on Monday. At the moment, the Energy Index is up more than 2% and the barrel of West Texas Intermediate is rising 0.5% at $65.15. Earlier in the day, reports revealed that a cyberattack forced the US to shut down fuel pipelines.

On the other hand, the Technology Index and the Communication Services Index both lose more than 1%, weighing heavily on the tech-heavy Nasdaq.

S&P 500 chart (daily)

  • USD/JPY trimmed a part of its intraday gains amid the emergence of some fresh USD selling.
  • The bias remains tilted in favour of bearish traders and supports prospects for further decline.
  • A sustained move beyond the 109.35 area is needed to negate the near-term bearish outlook.

The USD/JPY pair struggled to capitalize on its intraday positive move to levels beyond the 109.00 mark and has now retreated around 30-35 pips from daily tops. The pair was last seen trading around the 108.70 region, up over 0.10% for the day.

Friday’s disappointing US monthly jobs report reinforced market expectations that the Fed will keep interest rates low for a longer period. This continued acting as a headwind for the US dollar and kept a lid on any meaningful upside for the USD/JPY pair.

The negative factor, to some extent, was offset by the underlying bullish sentiment in the financial markets, which tends to undermine demand for the safe-haven Japanese yen. This, in turn, was seen as a key factor that helped limit the downside for the USD/JPY pair.

From a technical perspective, the emergence of some fresh selling at higher levels suggests that the recent leg down might still be far from over. The negative outlook is reinforced by the fact that oscillators on hourly/daily charts are holding in the negative territory.

That said, bearish traders might still wait for some follow-through selling below the post-NFP swing lows, around the 108.35 region before placing fresh bets. The USD/JPY pair might then turn vulnerable to slide further below the 108.00 round-figure mark.

The next relevant target to the downside is pegged near April monthly swing lows, around the 107.50-45 region. Sustained weakness below should pave the way for an extension of the recent corrective pullback from the vicinity of the 111.00 mark, or one-year tops.

On the flip side, any meaningful positive move beyond the 109.00 mark could be seen as a selling opportunity and runs the risk of fizzling out rather quickly near the 109.35 horizontal resistance. However, a convincing breakthrough will negate the near-term bearish bias.

The USD/JPY pair might then surpass monthly swing highs, around the 109.70 region and aim to reclaim the key 110.00 psychological mark. The momentum could further get extended towards the 110.55-60 resistance zone en-route YTD tops, just ahead of the 111.00 mark.

USD/JPY 4-hour chart

fxsoriginal

Technical levels to watch