US Macro

Foreign Exchange investors who were looking for clarity from yesterday’s ECB policy announcement would have been disappointed as comments from Mario Draghi failed to drive the single currency beyond recent ranges. Although the EUR/USD posted a 1 week high of 1.1220 prior to the meeting, the pair gave up those gains after the press conference to settle at 1.1150 at the NY close.

And while the ECB officials didn’t say anything particularly negative about the financial conditions in the European Union, the reiteration of more possible stimulus, expansion of the current QE operations and fears over a “Brexit” vote was enough keep many traders on the sidelines.

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Looking ahead to today’s US Non-Farm payroll report (NFP), there is a strong possibility that the recently settled Verizon strike could skew both the headline jobs growth number as well as the average hours worked components of the report.

The Verizon strike affected close to 40,000 workers at the Telco giant, but employment growth should still be strong enough to confirm a tightening labor market and support recent FOMC views that the FED is close to lifting the FED funds target soon.

According to a Reuter’s survey of economists, NFP likely increased by 165k in May after rising 160k in April. The jobless rate is forecast to drop by one-tenth of a point to 4.9%. The same report last week suggested that the month-long strike could slice 35,000 jobs from the headline number and without the strike employment for May would have risen to close to 200k.

The striking workers, who returned to work on Wednesday, were statistically regarded as unemployed since they did not receive a salary during the payrolls survey week.

On balance, it’s likely that as long as the hourly wages data prints in the positive .2% area and the unemployment rate is reported at 5.0% or lower, market participants will accept the report as consistent with a pick up in US growth in Q2 and support recent USD gains. In this sense, we suggest that there could be an asymmetrical response to a better-than-expected headline number.

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