It’s Still the Yen’s Show after US Non-Farm Payrolls and Wage Growth Missed Expectations

Dollar fails to regain spot light after worse than expected job data. Non-farm payroll showed 164k growth in April only, below expectation of 194k. Prior month’s figure, though, was revised up from 103k to 135k. Unemployment rate dropped to 3.9%, down from 4.1% and beat expectation of 4.0%. That’s also the lowest level since late 2000. But wage growth is another disappointment. Average hourly earnings rose only 0.1% mom, slowed from prior 0.3% and missed. expectation of 0.2% mom.

USD/JPY suffers steep selloff immediately after the release, hitting as low as 108.65 so far, comparing to day high at 109.23. But the greenback is staying in tight range against other major currencies including Euro, Sterling, Swiss Franc, Aussie and Canadian. It’s actually still the Yen’s show right now as EUR/JPY dives to as low as 130.01, comparing with day high at 130.93. GBP/JPY hits as low as 147.32, comparing to day high at 148.29.

For Dollar, levels to watch are 1.2031 minor resistance in EUR/USD, 1.3629 minor resistance in GBP/USD, 0.7583 minor resistance in AUD/USD and 0.9937 minor support in USD/CHF. As long as these level holds, Dollar’s rally is still expected to resume sooner rather than later.

US gave China a “detailed list of asks” in Beijing

It’s reported that US Treasury Secretary Steven Mnuchin gave China a “detailed list of asks” during their trade negotiation talks in Beijing. In short, US asks China to narrow trade surplus by US 200B by 2020, reduce trade imbalance immediately, halt subsidies for advanced tech, cut tariffs on all products to levels no higher than that of US, refrain from targeting US farmers and agricultural products, refrain from retaliating against US restrictions on investments from China.

In an editorial in the official China Xinhua, it’s set that China and the US “reached agreements” on some issues in the trade talks. And both sides agreed to set up a “work mechanism” to keep close communications. But there are “considerable differences” that still exist on some issues and “continued hard work is required for more progress”.

Eurozone PMIs not yet at “worringly low level”

Eurozone PMI services was finalized at 54.7 in April, revised down from 55.0. Prior month’s reading was 54.9. Eurozone PMI composite was finalized at 55.1, revised down from 55.2. Prior month’s reading was 55.2. German PMI composite dropped to 19-month low at 54.6. Italy PMI composite dropped to 15-month low at 52.9. On the other hand, France PMI composite rose to 2 month high at 56.9. Ireland PMI composite rose to 3 month high at 57.6.

Chris Williamson, Chief Business Economist at IHS Markit noted that “the final PMI numbers confirm the marked, broadbased fading of the eurozone’s growth spurt so far this year.” However, it’s not yet a “worryingly low level” even though there will be further easing in the coming months.

Constancio: ECB is now a modern, effective and prepared central bank

In a speech titled “Past and future of the ECB monetary policy”, ECB Vice President Vitor Constancio reviewed the four phases in the ECB journey since 1999. They are the beginning, pre-crisis, global financi crisis and great financial, and ultra-low and QE. And after going through the journey, the “new unconventional instruments, along with forward guidance, negative rates and reverse repos belong now to the monetary policy toolkit to be used whenever necessary.” And ECB will have “no excuse” no to fulfil its mandate.

ECB has also joined the “community of central banks of other major jurisdictions using flexible inflation targeting regimes and asset purchases as non-standard measures.” ECB is now a “modern, effective and prepared central bank to serve the goals of monetary union.” Full speech here

RBA to stay patient despite slightly more positive than expected forecasts

In RBA’s latest Statement on Monetary Policy, economic projections were largely unchanged. Overall, the projections are slightly more positive than expected. But there wouldn’t be any change to the expectation that RBA will stand pat throughout 2018, at least. There was no downward revision in GDP forecast. Underlying inflation forecasts were revised slightly up. On the negative side, unemployment rate will take longer to drop again.

Unrevised, year-average GDP growth is forecast to be at 3.00% in 2018 and 3.25% in 2019. CPI inflation is forecast to rise to 2.25% at 2018 year end and stay there till June 2020.

The first change is that unemployment rate forecast was raised to 5.50% in June 2018 and December 2018, revised up from 5.25%. Onwards, unemployment rate is projected to drop to 5.25% in June 2019 and stay there till June 2020.

The second change is that underlying inflation is expected to be higher at 2.00% in June 2018 and December 2018, revised up from 1.75%. Then underlying inflation is projected to stay a 2.00% till picking up again to 2.25% in June 2020.

USD/JPY Mid-Day Outlook

Daily Pivots: (S1) 108.78; (P) 109.33; (R1) 109.74; More…

USD/JPY drops to as low as 108.64 so far as the correction from 110.02 short term top extends. Intraday bias stays on the downside for near term channel support (now at 108.56) and below. But we’d expect strong support from 38.2% retracement of 104.62 to 110.02 at 107.95 to contain downside and bring rebound. Above 109.24 minor resistance will bias back to the upside for 110.02. Break of 110.02 will resume the rise from 104.62 to t 61.8% retracement of 114.73 to 104.62 at 110.86 next.

In the bigger picture, break of 108.12 support turned resistance now suggests that corrective fall from 118.65 (2016 high) has completed with three waves down to 104.62. And, rise from 98.97 (2016 low) could be resuming. Focus is back on 114.73 resistance and break there will pave the way to 118.65 and above. This will now be the preferred case as long as USD/JPY stays above 55 day EMA (now at 107.97).

Economic Indicators Update