Labor market recovery slowing down

Hi Everyone,

U.S. jobs report disappointed for the second month in a row. Headline data shows that 559,000 new jobs were added during the month of May, when the consensus expected 675,000 new jobs. Unemployment dropped to 5.8%, which remains higher than the pre-pandemic level of 3.5%. Whilst the recovery is still intact, the pace of the change, or delta, seems to have slowed down. Around 75% or 390,000 jobs were added in the sectors battered most by the pandemic, such as education, local government, childcare, airlines and leisure / hospitality – a clear indication of re-opening and successful vaccine programs allowing children to return to the classroom and parents to their jobs. Despite the relatively strong recovery in recent months, the labor market is still short of 7.6 million jobs, compared to pre-pandemic levels.

The markets were clearly disappointed, especially after a strong ADP Employment change report a day earlier. ADP report surprised to the upside with 978,000 new jobs added, versus the consensus expectation of 650,000. U.S. dollar index DXY jumped at the back of ADP data, closing the day 0.65% higher, near 34-day exponential moving average resistance level. The following day with a disappointing non-farm payroll report forced the Greenback down again, finding support near the 8-day exponential moving average. We believe the dollar continues to slide lower during upcoming days and weeks, potentially moving sideways between $90.2 and $89.6 levels that have proven to offer support and resistance previously. Swing low of $89.2 is only a percentage point away from current levels and likely to be tested as well.

The main market mover this week is the U.S. CPI data print, published on Thursday. The consensus expects YoY core inflation to touch 3.0%, after spiking to 3.4% in April. We saw the highest price increases last month in used autos and trucks, but also in airline tickets and events prices. These pressures are likely to continue this month as the economy is re-opening rapidly and people are increasingly becoming mobile again. What remains to be seen is whether the price pressures from the housing sector are having an impact on rentals. Consumer Price Index has been constructed in such a way that only owner’s equivalent rent, i.e., rentals, is taken into consideration, omitting residential real estate market and related price swings. Whilst the residential real estate market is red hot – prices have jumped 17.6% on an annualized basis since October last year, the rental market is not indicative of that bubble yet. In fact, the shelter component was largely flat last month, signaling that renters still had negotiating power.

It seems likely that CPI might offer another surprise to the upside but with the Fed currently in Blackout period and weak jobs report we don’t foresee sustained volatility in FX markets. The dollar might rise on the back of high CPI number but is likely to retreat in a similar fashion we saw last month.

S&P 500 closed last week up 0.61% at 4,229.88 points, while Nasdaq-100 rose 0.62% to 13,770.77 points. Russell 2000, representing U.S. small and medium companies, gained 0.77%. Risk assets were supported by somewhat flat dollar as DXY index rose 0.09%. Gold shed 0.63% last week, closing the week at 21-day exponential moving average, while oil had another stellar week, gaining 4.18%, after comments from OPEC about thinning supplies and increased demand for the second half of the year.

Have a great trading week ahead!

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In The Spotlight

DateCurrencyEventPrevious Consensus 
MondayJPYGDP (QoQ) – Q1-1.3%-1.2%
TuesdayEUREuro Area GDP (QoQ) – Q1-0.6%-0.6%
WednesdayCADBoC Interest Rate Decision and Monetary Policy Statemant0.25%0.25%
ThursdayEURECB Interest Rate Decision0.0%0.0%
ThursdayUSDCore CPI (YoY) – May3.0%3.4%
FridayEURG7 Meeting

• U.S. Consumer Price Index
CPI, or inflation measures the rise in consumer prices in an economy over a certain period of time. Higher inflation means that consumer
prices have grown compared to the previous period. Higher than expected rate may be both positive or negative for currency as the
market does not like inflation expectations too far off from consensus. Generally, both high and negative inflation are bearish for currency, while positive and low inflation, in line with the consensus, is bullish

• Japan and Euro Area Gross Domestic Product
GDP data shows the monetary value of all the goods and services produced in any economy. A negative number indicates a contraction of economic activity while a positive number shows an expansion. A better than expected GDP growth is generally positive for a currency, whilst a print below expectations tends to be negative.

Market Sentiment

EURUSD has taken a step lower, currently finding support near 21-day exponential moving average (EMA) near 1.21600, whilst 8-day EMA is offering resistance near 1.21780. Price is still in buy mode with stacked moving averages supporting bullish trend. Momentum is moderate, looking at ADX of 24. Oscillators are both in neutral zone and slightly pointing lower. Upward move seems likely, whilst potential pressure may arise from GDP data and U.S. CPI print published later this week. Resistance levels have formed near 1.21850 and 1.22060, while support is near 1.21430 and 1.21035.

Resistance: 1.21850
Support: 1.21430

GBPUSD is currently testing 21-day EMA support near 1.41090 and 8-day EMA resistance near 1.41435. Momentum indicators signal bullish trend short- and long-term, while the momentum is weak as ADX sits at 22. RSI and Stochastic oscillators are both neutral but seemingly pointing lower. Upside move seems likely and the price might test resistance levels near 1.41815 and 1.42065. Support is near 1.41030 and 1.41755.

Resistance: 1.41815
Support: 1.41030

NZDUSD short-term trend has become ambiguous with 8-day EMA overlapping with 21-day EMA. Price is testing currently 34-day EMA support near 0.72045. Price action has largely been rangebound since late May with weak momentum. Long-term trend is still bullish but resistance levels near 0.72195 and 0.72415 need to be broken first. Support levels are near 0.71985 and 0.71695.

Resistance: 0.72195
Support: 0.71985

XAUUSD has retreated from swing highs and is currently finding support near lower regression band level near 1,881.19. Momentum indicators are still bullish short- and long-term, whilst oscillators have retreated to neutral zone. Momentum is strong, indicating that the pair is likely to re-test the swing high levels near 1,916.00. Resistance levels are near 1,899.78 and 1,912.51, while support is near 1,881.19 and 1,870.42.

Resistance: 1,899.78
Support: 1,881.19

Kaia Parv, CFA, is an experienced Portfolio and Investment Manager with exposure to both public and private markets. Before joining FXPRIMUS, Kaia was a Senior Investment Associate at EFA Group and a Vice President in Bank of America Merrill Lynch.

Any opinions, news, research, analyses, prices or other information contained here are provided as general market commentary and do not constitute investment advice. FXPRIMUS does not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.

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