· The dollar was set for its worst week since March as it trod water on Friday ahead U.S. jobs data that is seen supporting chances of a U.S. interest rate cut, while the euro held gains made after a less dovish than expected central bank policy review.
The U.S. non-farm payrolls data for May due out later in the global day is expected to show a drop in hiring.
Against a basket of six peers, the dollar was steady at 97.042, trading about 0.3% above an eight-week low of 96.749 brushed on Wednesday.
The index was on course for a 0.72% loss this week, its worst weekly performance since the week of March 15, when it gave up 0.73%.
The euro jumped half a percent during the previous session as markets had positioned on a more dovish signal from the ECB and an acknowledgement of weak economic growth in the bloc.
The single currency last edged down 0.05% to $1.1269, but was still set for a weekly gain of 0.9%, its best weekly performance against the dollar since late September last year, when it rose nearly 1.1%.
· USD/JPY created a bullish engulfing candle in Wednesday, but so far, the follow-through has been dismal with the pair struggling to find acceptance above 108.40 (engulfing candle’s high).
The USD/JPY pair trades above the 23.6% retracement of the latest daily decline in the 108.30 price zone, offering a short-term neutral-to-bullish stance, according to the 4 hours chart, as it is confined to a tight range above a directionless 20 SMA. Technical indicators in the mentioned chart are bouncing within neutral levels, favoring the upside without confirming it. The pair could turn bullish on an upbeat US employment report, yet it would need to break above 108.60, the 38.2% retracement of the mentioned decline, to be able to extend its gains during the following sessions.
Support levels: 108.30 108.05 107.85
Resistance levels: 108.60 109.00 109.40
· EUR/USD is currently trading at the 100-day moving average (MA) level of 1.1273.
The common currency created a bullish outside day candle on Thursday, reinforcing the bullish view put forward by the descending triangle breakdown confirmed on Monday.
Notably, the pair hit a high of 1.1309 post-European central bank (ECB) rate decision and during President Draghi’s presser. The high and low set /during ECB events usually serve as make or break levels.
So, 1.1309 is the level to beat for the bulls. A daily close higher would further strengthen the short-term bullish case and allow a rally to 1.1448 (March 20 high).
On the downside, 1.12 – the low of the bullish outside day – is key support, which, if breached, would open the doors to retest of recent lows near 1.11.
· The Bureau of Labor Statistics (BLS) a division of the US Labor Department will issue its Employment Situation Report for May on Friday June 7th at 8:30 am EDT, 12:30 pm GMT.
Non-farm payrolls are predicted to add 185,000 in May following April’s 263,000 increase. Manufacturing will gain 5,000 positions after the prior month’s 4,000. Private payrolls should rise 175,000 after 263,000 new posts in April. Government payrolls rose 27,000 in April. The U-3 unemployment rate is projected to remain at 3.6%. Average hourly earnings on the month will increase 0.3%, in May they added 0.2% in April. Annual earnings are forecast to be unchanged at 3.2% and the workweek to rise 0.1 hour to 34.5 hours.
The Bureau of Labor Statistics (BLS) a division of the US Labor Department will issue its Employment Situation Report for May on Friday June 7th at 8:30 am EDT, 12:30 pm GMT.
Initial claims bear no sign of building problems for US employment. The decline in business hiring sentiment that has taken place over the past eight months has had little effect on actual job creation.
· U.S. President Donald Trump said on Thursday he would decide whether to carry out his threat to hit Beijing with tariffs on at least $300 billion in Chinese goods after a meeting of leaders of the world’s largest economies late this month.
· There’s still a chance that the U.S. and China could reach a trade deal by the end of this year, but that won’t be enough to cause investors to cheer, according to an investment expert from BlackRock.
Isabelle Mateos y Lago, deputy head of BlackRock’s Official Institutions Group, said Friday that any trade deal between Washington and Beijing will likely be “narrow.” That means the deal won’t likely resolve all the tensions between the two countries, she explained.
In addition to the rivalry between Washington and Beijing, investors are worried about U.S. President Donald Trump’s recent threats to impose a new tariff on Mexico to address his immigration concerns, according to Mateos y Lago.
Even if the U.S. and China manage to resolve their conflict, investor sentiment will still be weighed down, she added.
· The Federal Reserve will cut borrowing costs by 25 basis points in September and December this year, according to Westpac’s Chief Economist Bill Evans.
Evans’s assessment is based on a new variable – political unpredictability – that has entered the US economic model and could have a negative impact on the US investment decisions and consumer and business confidence.
· A dovish Federal Reserve can use tools such as rate cuts to lessen the damage of America’s tariff skirmishes with China and Mexico, but it is either limited in its effectiveness or in its motivations, two economists told CNBC on Thursday.
Instead, the U.S. has to resolve those issues at the negotiating table, Nathan Sheets, chief economist at asset manager PGIM Fixed Income, told CNBC at the IIF Spring Membership Meeting in Tokyo.
“The Fed can mitigate some of the adverse effects, but I’m not sure the Fed is inclined to move fast enough or significantly enough to entirely offset the effects of this trade war. I think ultimately the solution or resolution of this has to come at the negotiating table between President (Donald) Trump and President Xi (Jinping), and between the United States and Mexico, ” he said.
“The Fed will do its best given where the economy is, but it would take a dramatic easing of monetary policy for them to fully offset these kinds of effects,” Sheets added.
· Most European Union governments will back another Brexit delay regardless of who becomes the next British prime minister, The Times reported on Friday, citing a senior European source.
At least 25 European governments are prepared to give the UK another extension, despite statements from most British prime minister candidates that Britain will leave the EU on Oct. 31 with or without a deal, the newspaper added.
· Both German industrial output and exports fell more than expected in April, data showed on Friday, highlighting the vulnerability of Europe’s largest economy to headwinds from trade frictions and Brexit uncertainty.
Industrial output declined by 1.9% on the month, data from the Statistics Office showed. That was the sharpest drop since August 2015 and came as factories churned out fewer investment and intermediate goods. Economists had forecast a 0.4% fall.
Separate data showed exports dropping by 3.7 percent in April, also the biggest drop since August 2015.
· Brazilian President Jair Bolsonaro said on Thursday the Mercosur bloc of South American countries will soon sign a trade deal with the European Union, and he thanked Argentine President Mauricio Macri for his role in pushing for the commercial pact.
· The U.S. Treasury Department on Thursday tightened its pressure on Venezuela’s state-owned oil company by making clear that exports of diluents by international shippers could be subject to U.S. sanctions.
The change, announced on the Treasury Department’s website, is the latest U.S. measure aimed at pressuring Venezuelan President Nicolas Maduro by limiting access to oil export revenue from PDVSA.
· Oil prices rose more than 1% on Friday, climbing further away from five-month lows hit earlier in the week after a report that Washington could postpone trade tariffs on Mexico and amid signs that OPEC and other producers may extend their supply cuts.
Brent crude futures were up 79 cents, or 1.3%, at $62.46 a barrel by 0641. They gained 1.7% on Thursday.
U.S. West Texas Intermediate (WTI) crude futures were up 65 cents, or 1.2%, at $53.24 per barrel. They finished the previous session 1.8% higher.
Reference: Reuters, CNBC, FX Street
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