Trade ideas & Daily market report April 6th 2021
US non-farm payrolls increased 916,000 for March, well above consensus expectations of a 650,000 increase, and the February increase was revised higher to 468,000 from the original figure of 379,000. There were solid gains across most sectors and a rebound in government jobs for the month.
Unemployment declined to a 12-month low of 6.0% from 6.2% previously and in line with market expectations. Most European markets were closed and there was a partial US holiday which curbed market reaction and the dollar gained only slight further support.
CFTC data recorded a decline in long, non-commercial Euro positions to a 12-month low, limiting the scope for further selling.
The US PMI services-sector index was revised to 60.4 for March from the flash release of 60.0 with the fastest increase in incoming business for over 5 years
The ISM services-sector index strengthened sharply to a record high of 63.7 for March from 55.3 previously and well above consensus forecasts of 58.3. There were also very strong increases in the rate of production and orders growth with both figures posting record monthly highs. Employment increased at a faster pace for the month while the rate of price increases also accelerated. The data maintained strong underlying confidence in the US outlook.
Overall confidence in the Euro-zone outlook remained fragile, especially with France entering a 4-week national lockdown, although expectations of a faster vaccination rate provided some relief. Despite Euro-zone concerns and notably strong US data, the dollar lost ground on Monday with a retreat to 10-day lows and EUR/USD moved above 1.1800. Trading volumes will recover on Tuesday and EUR/USD held just above 1.1800 as the dollar failed to secure renewed traction.
The dollar was unable to gain more than limited backing from Friday’s stronger than expected US employment report and USD/JPY was capped below the 111.00.
CFTC data recorded a further increase in short yen positions to the highest level for 2 years, limiting the scope for further yen selling and increasing the correction risk.
Treasury Secretary Yellen warned against any premature tightening of global fiscal policy and there were strong expectations of further US support with the Senate again ruling that reconciliation can be used to approve legislation. Wall Street equities remained strong with the S&P 500 index posting fresh record highs which provided an element of US dollar support. US yields, however, again failed to gain any sustained traction despite the stronger than expected data releases. Overall, USD/JPY dipped sharply to test the 110.00 level amid a wider retreat before a correction.
China’s Caixin PMI services index strengthened to 54.3 for March from 51.5 previously with net gains for employment. There were, however, also reports that China had asked banks to reduce credit supply which dampened expectations surrounding the outlook and risk appetite was slightly more cautious.
US yields edged lower on Tuesday and S&P 500 equity futures also posted slight losses which limited yen selling and USD/JPY settled around 110.20.
Sterling was held in narrow ranges ahead of the holiday weekend with little in the way of fresh incentives and London markets closed on Friday. There was GBP/USD support close to 1.3800 against the US dollar. CFTC data registered a net increase in long Sterling positions for the first time in four weeks which indicated slid sentiment.
UK Prime Minister Johnson confirmed that the planned easing of coronavirus restrictions would go ahead on April 12, including the re-opening of non-essential retail. Underlying confidence in the UK recovery continued to provide net Sterling support. Chancellor Sunak also announced a new government-backed loan scheme to help companies recover.
The UK currency also gained net support from the advance in global equities with FTSE 100 futures posting solid gains. There were GBP/USD gains to just above 1.3900 while EUR/GBP continued to test the key 0.8500 support area, although volumes remain low. GBP/USD traded just above 1.3900 on Tuesday with EUR/GBP just below the 0.8500 level and continuing to test support levels as UK markets re-opened.
The Swiss franc posted net gains on Monday despite optimism over the global economy and the advance in equity markets. The yen was also resilient during the day which provided net franc support as global risk conditions remained under close scrutiny.
Overall, EUR/CHF edged lower to 1.1060 while USD/CHF retreated sharply to lows near 0.9350 amid wider losses. A retreat in US yields limited franc selling, although there was slightly greater confidence surrounding European vaccine developments. EUR/CHF traded around 1.1070 on Tuesday with USD/CHF around 0.9370.
AUD/USD + USD/CAD
The Australian dollar posted significant gains on Monday amid a sharp US dollar correction weaker and strength in Wall Street equities. Overall, AUD/USD strengthened to highs around 0.7660.
The Reserve Bank of Australia held interest rates at 0.1%, in line with expectations, and there was little change in the policy statement with further comments that there would be no rate increase until inflation was in the 2-3% range.
Overall, AUD/USD was marginally lower amid reservations over the Chinese credit outlook and settled just above 0.7650 as the US currency drifted lower.
The Canadian dollar was hampered by a sharp retreat in oil prices, but the negative impact was offset by a combination of equity-market gains and a weaker US currency. Overall, USD/CAD dipped to lows at 1.2500 on Monday before a correction to 1.2520.
Oil prices recovered some ground on Tuesday, but USD/CAD edged higher to 1.2530.
The Norwegian krone was unable to gain fresh support as a dip in oil prices stifled support. EUR/NOK also found support above the 10.00 level.
There was little change on Tuesday as markets re-opened with EUR/NOK edging lower towards 10.03 and USD/NOK testing support below 8.50.
The Swedish krona continued to lose ground on Monday amid a lack of volume. EUR/SEK posted net gains to highs near 10.30 before a limited correction to 10.28 with further selling against the Norwegian krone.
EUR/SEK traded around 10.28 on Tuesday with USD/SEK around 10.70.
European stocks posted gains on Thursday ahead of the Easter holidays as optimism over the manufacturing sector helped drive market sentiment. The Eurostoxx 50 index gained 0.7% to near record highs.
Major UK stocks also posted a 0.35% advance on Thursday amid expectations of global recovery.
After being closed on Friday, Wall Street indices posted solid gains on Monday as strong economic data boosted confidence in recovery prospects. The S&P 500 index posted a 1.4% advance to a fresh record high with some relief that yields retreated.
Futures did edge lower on Tuesday and there was a more cautious tone in Asia.
Japan’s Nikkei 225 index declined 1.3% amid a significant dollar retreat, although the Australian ASX index gained 0.8% amid optimism over the travel sector.
China’s Shanghai index traded marginally lower in late trading amid reservations over credit trends while Hong Kong’s market remained closed.
Oil prices have maintained a volatile underlying tone with further sharp moves.
Crude was initially resilient after the OPEC+ decision to increase oil production in a gradual and contained manner, especially with optimism over increased US demand.
There was, however, a sharp retreat on Monday as Iran increased oil output. WTI posted a sharp retreat despite further optimism over US growth trends and a weaker dollar.
There were underlying concerns over global coronavirus trends with WTI dipping to below $59.0 p/b.
WTI recovered to $59.40 p/b on Tuesday with Brent around $62.85 p/b as the dollar drifted weaker.
Precious metals advanced on Thursday, but were unable to gain fresh traction on Monday despite the weaker US dollar and slight retreat in US yields.
Gold settled just below $1,730 per ounce while silver was unable to hold above $25.00 per ounce.
There was slightly increased support on Tuesday as bond yields moved lower with gold just above $1,735 per ounce and silver edging above $25.0 per ounce.
Cryptocurrencies have been subjected to further volatile trading conditions, especially given the impact of low trading volumes during the holiday period.
CFTC data recorded small net decline in the short bitcoin position.
Bitcoin strengthened to highs on Friday, but was unable to sustain the advance and dipped to lows below $56,500 on Sunday.
Gains in Wall Street equities and a weaker dollar triggered fresh gains on Monday with a move back above $59,000.
Underlying sentiment remained firm amid expectations of increased global acceptance with bitcoin close to $59,000.
Ether posted a fresh record high near $2150 on Sunday before a net correction with strong buying on dips and it held above $2,100 on Tuesday.
Major events for the day ahead: (times in GMT)
15.00: US JOLTS job-openings data