Risk Constructive Ahead of Important US Job Report

Europe closed in mixed territory yesterday following a lower PPI and an ECB which turned out to be a non-event as expected. Strikes and flooding in mainland Europe also had an effect, leading to the DAX just managing to take home gains, whereas the CAC40 and FTSE100 lost ground. In the US, markets were bid, looking to take home their third weeks of gains, with benchmark indices 0.3/0.4% higher yesterday, led by healthcare and telcom. On the macro front, the US ADP came out more or less as expected and the Bloomberg Consumer Confidence edged slightly higher, but didn’t have a real market impact. In FX markets, the USD gained overall, but lost ground against the JPY for the third day in a row and it looks like we will have a weekly bearish engulfing pattern, indicating more downside to come. The EUR fell on the ECB, despite the central bank mentioning that downside risks had diminished. In commodity markets, oil prices managed to stay bid despite the OPEC deciding not to set a cap on production.

This morning, Asian equities followed US equities higher despite a slight drop in the Chinese May Caixin Services PMI, coming out at 51.2 vs. 52.0 expected. Although the figure fell short of expectations, there is still expansion as the index is above 50.

USDJPY Weekly

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In the EU session, we will be watching the UK Services PMI at 1030CET, which is expected to come out at 52.5 in May vs. 52,3 in April. New business orders in recent months should lay the foundation for the increase, despite recent UK turbulence ahead of the BREXIT referendum on June 23rd.  Cable has been very sensitive to polls related to the referendum and on a technical level, the pair has posted a double top on daily, where a close below the neckline at 1.4333 would give a technical target at 1.3896.

GBPUSD Daily

20160603 GBPUSD.Daily

EU April Retail Sales at 11CET are expected to show a decent monthly comeback from March with the monthly figure expected at 0.3% vs. -0.5%. Should the figure surprise to the upside, we could see a short term improved risk sentiment in Euro markets, but expecting a relatively range bound market ahead of the US Job Report.

In the afternoon, all eyes will be on the US May Job report, where the Unemployment rate is expected to drop back below 5% and the NFP figure is expected to come out at 164K vs. 160K in April. The earnings figure should also be watched for a potential increase in inflationary pressure.

At the same time, we have Canadian figures, so watch out for a double whammy in USDCAD, should the figures be “aligned”. Later in the US session, Factory Orders and ISM Services PMI will be out, so this will be a key day for the US rate outlook. Should we see figures coming out to the upside, we expect this will trigger additional bids in USD yields and increase the market gauging of a near term US rate hike – watch out for EURUSD potentially taking out May lows just below the 1.11-figure, which would give scope for a test of 1.1060-area.

EURUSD

20160603 EURUSD.Daily

Have a nice weekend.

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