- US Fed's Rosengren, Yellen, Kohn to Speak (1815)
- Japan Apr. Current Account (Sun 2350)
Market Comment:
The pound continued to lose significant ground coming into today with turmoil in the Brown government, but also likely due to the collapse of the Rio Tinto deal with Chinalco, which has likely seen a massive unwind of M&A related flow with the company's dual listing in Australia and the UK. But with equities and risk appetite bursting higher after the US employment data release, GBP fought back a bit. 1.60 in GBPUSD seems to be a key support level for the pound at the moment. EURGBP would actually threaten a short term bearish reversal if the pair closes back below 0.8775 today, though the technicals are a bit rangebound after the pair failed to punch down through the 200-day moving average on its first try.
After last month's upside surprise in employment data, the Canadian employment report was absolutely terrible today, with the unemployment rate jumping to 8.4% from 8.0% and full time job losses far worse than the headline numbers (many pointed out that the April number was actually less strong than it appeared at first blush due to a rise in part time employment rather than any resilience in full time positions). The loonie was trading a bit to the weak side before the US numbers, and that reaction has continued as commodities seem to be taking it on the chin after the
The Scandies deserve a bit of the spotlight lately. First, SEK has weakened sharply with the focus on the potential for a Latvian default, considering Sweden's bank exposures to the region. But if we follow the chain of logic, it is a bit difficult to built a case for the SEK to weaken significantly beyond the very short term versus the Euro. After all, Latvia is at the front of an either/or domino effect phenomenon for all of Central/Eastern Europe. Either the IMF, among others, continues to bailout the country to some extent or another, and keeps it and other CEE countries on life support. The "or" is that Latvia is allowed to slip into a chaotic devaluation, triggering a domino collapse in other weaklings in the region, including the likes of Hungary and even possibly spreading to the weaker EuroZone members. If that final destabilization comes to pass, it would be extraordinarily Euro bearish. In other words, the very fears that are triggering a weaker SEK are actually more potentially bearish for the Euro down the road. We would be on the look out for a reversal. As for NOK, the central bank has been out threatening to defend against a strengthening of the currency - more than a bit odd considering the weak level of the krone if we look back at historic rates (and ignore the spike to 10 late last year). The NOK is grossly undervalued versus the EUR, and 9 would seem to represent very good value for the NOK in the bigger picture.
The US employment report was thoroughly confusing, with a much better than expected payrolls number (showing less than half of the job losses in the economy compared to the January nadir of -741k) accompanying a worse than expected rise in the unemployment rate to 9.4%. Unlike previous revision, which have added as much as a million lost jobs to the tally over the last year, the revision of the April data was actually an upward revision. It seemed that the market was looking for a strong number today - but seems to want to celebrate it anyway. The USD has initially jumped higher despite still strong equities, perhaps as the short end of the curve in the US is actually responding positively to the supposedly positive US data. Is the market actually trying to anticipate Fed hikes? Apparently so....
The primus motor across markets may be the longer end in the bond market as long yields have jumped to new highs in the wake of the numbers, pushing the JPY to a new trough against most currencies initially, though that seems to be rapidly unwinding. The JPY crosses could see the most volatility, especially if the bond move reverses today (a strong possibility?) Watch the likes of AUDJPY and CADJPY for potential fireworks.
Charts: USDCAD
The US and Canadian job reports headed in opposite direction today (if the market is focusing chiefly on the payrolls number in the US at least), and commodities are coming off heavily with the strength in the USD. A further correction sequence toward the 21-day moving average could be a possibility if the USD is seeing a respite here.
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