Dollar Mildly Higher after ADP Employment, But No Follow Through Buying Yet

Dollar strengthens mildly in early US session after stronger than expected job data. But there is no follow through buying seen yet. ADP report showed 263k growth in private sector jobs, versus consensus of 189k. Prior month’s figure was revised down fro 298k to 245k, but was still solid. Markets will look into the FOMC minutes of March meeting to be released later today, as well as non-farm payroll report on Friday. The two-day meeting between US President Donald Trump and China President Xi Jinping will also be closely watched. But after all, directions of Dollar and treasury yields will remain dependent Fed expectations. And it’s well known that Fed’s base case is three hikes in total this year. Change in the base case will require solid input from Trump’s implementation of his economic policies. And we’re yet to see anything solid. Any movements in the greenback would likely be temporary before Trump delivers.

North Korea missile test ignored

Markets reacted rather calmly to news that North Korea fired another ballistic missile into waters off its east coast into the sea of Japan. Or indeed, some might say that markets didn’t react at all. The US department of state also responded by said that "the United States has spoken enough about North Korea. We have no further comment". North Korea is believed to be one of the top issues at the two-day meeting between Xi and Trump. And Trump has also said that China should use its "great influence" to resolve the issue of North Korea. And, Trump said that "if China is not going to solve North Korea, we will". But then again, there is no detail on what US will do in case Trump cannot break the deadlock on North Korea with China.

UK services PMI beat expectations

UK services PMI rose to 55.0 in March, up from 53.3 and beat expectation of 53.5. Markit noted that "the survey data indicate that UK business activity growth regained some momentum after having slipped to a five-month low in February, but the upturn fails to change the picture of an economy that slowed in the first quarter." Meanwhile, the relative weakness of the PMI survey data compared to that seen at the turn of the year suggests the economy will have grown by 0.4% in the first quarter, markedly lower than the 0.7% expansion as seen in the fourth quarter of last year." And, "much of the disappointment in growth so far this year has been evident in consumer-oriented sectors, in part linked to spending and incomes being squeezed by higher prices.

Also from Europe, UK BRC shop price index dropped -0.8% yoy in March. Eurozone services PMI was revised down to 56.0 in March, Germany services PMI unrevised at 55.6, France services PMI revised down to 57.5. Italy services PMI dropped to 52.9, down from 51.4 and missed expectation of 54.3.

ECB Vasiliauskas: too early to discuss stimulus exit

In Eurozone, ECB governing council member Vitas Vasiliauskas said that "it is too early to discuss an exit because still we have a lot of significant uncertainties." He believed that "recovery of inflation is still fragile". Also, he emphasized that ECB has to "end purchases and only then we can discuss other actions." And he found the discussions of raising interest rate before end of QE as "illogical". Meanwhile he stressed that ECB’s forward guidance is "very important" and should be "as predictable as possible".

Leftist Jean-Luc Melenchon came out of the chaotic eleven candidate French presidential election TV debate as the best performer. According to an Elabe poll, 25% said Melenchon was the most convincing performer in the debate. Conservative François Fillon got 15% followed by far right candidate Marine Le Pen’s 11%. An OpinionWay poll had centrist Emmanuel Macron, Melenchon and Fillon tied at 18% and Le Pen at 11%. Euro showed little reaction to the news.

BoJ may downgrade inflation forecast this month

In Japan, a former BoJ official Kazuo Momma said that the central bank will likely revise down inflation forecast soon, possibly as early as during the quarterly review this month. Momma noted that the BoJ’s price forecasts are "too optimistic". Meanwhile, it’s "hard to raise interest rates when you’re cutting your inflation forecasts." Momma expects core inflation hover around 0.5% in the current fiscal year, and jump to 1.0% next. That’s sharply lower than BoJ’s expectation of core inflation hitting 1.5% by the end of fiscal 2017 and 1.7% by the end of fiscal 2018.

USD/CHF Mid-Day Outlook

Daily Pivots: (S1) 1.0006; (P) 1.0022; (R1) 1.0032; More…..

USD/CHF’s break of 1.0036 suggests that rise from 0.9812 has resumed. Intraday bias is turned back to the upside for 1.0619 resistance first. As noted before, corrective decline fall from 1.0342 should have finished with three waves down to 0.9812 already. Break of 1.0169 should confirm this bullish case and target a test on 1.0342 high. On the downside, below 1.0007 minor support will turn bias neutral and bring retreat before staging another rally.

In the bigger picture, USD/CHF is staying in medium term sideway pattern between 0.9443/1.0342. In any case, decisive break of 1.0342 resistance is needed to confirm underlying strength. Otherwise, we’ll stay neutral in the pair first. In case of another fall, we’d expect strong support from 0.9443/9548 support zone.

Economic Indicators Update