The US non-farm payrolls report on Friday was impressive, but it couldn’t dissuade equity traders from their desire to lock-in profits from the impressive gains that were notched up earlier in the week.
Friday saw stock markets in Europe as well as the US finish lower, but they enjoyed a very bullish run in the four preceding sessions. China took action to stem fears in its domestic stock market by injecting liquidity into the markets, tightening rules selling, as well as announcing that levies on $75 billion worth of US imports will be cut. The result was that global stocks drove higher. Some equity benchmarks recouped much of the ground that was lost on account of the coronavirus situation, while the major US indices racked up record highs. Dealers shrugged off the solid US jobs report as they seemed determined to reduce their exposure to stocks in the run-up to the weekend.
The non-farms report showed that 225,000 jobs were added last month, with economists expecting only 160,000. The December reading of 145,000 was revised up to 147,000. Yearly average earnings came in at 3.1%, topping the 3% forecast. The previous earnings reading was revised higher to 3%, from 2.9%. The unemployment rate edged up to 3.6% from 3.5%, which was the only drawback of the update. It is worth noting the 3.5% unemployment rate was a 50-year low, so in the grand scheme of things the jobless rate is still very low.
The US jobs data helped the greenback push higher versus all the major currencies accept the yen – which is a safe-haven move. The US labour market is in rude health, which gave traders the encouragement to buy into the greenback as the Fed seem very unlikely to be cutting rates anytime soon.
Overnight, China posted the latest CPI figures and the reading was 5.4%, while economists were expecting 4.9%. Keep in mind the previous reading was 4.5%. The PPI level was 0.1%, meeting forecasts, and the last reading was -0.5%. The low PPI reading suggests that demand at the factory level is weak. The Chinese government relaxed restrictions in relation travel, and some people started going back to work. Traders are still cautious about the situation. Stocks in China are a little lower.
The greenback might have been higher on Friday but that failed to stop gold’s advances. The metal usually has a negative correlation with the US dollar but it appeared the flight to quality desire of dealers took precedence. The commodity is comfortably above the mid-January lows so the bullish trend is still in effect.
Oil tumbled on Friday on demand fears as well as the lack of unity from OPEC+ in relation to supply. Traders were fearful that China’s appetite for the energy will drop off as the health crisis is deepening. In addition to that, Russia are not keen on production cuts unlike the rest of OPEC+, so that division encouraged traders to dump oil.
Italian industrial production will be released at 9am (UK time) and economists are expecting a 0.5% fall, while the November report was 0.1%. Last week there were dreadful industrial production reports from German and France as they showed a fall of 3.5% and 2.8% respectively. The industrial output isn’t the most influential update, but at the same time a very disappointing update will be remembered by traders.
EUR/USD – has been pushing lower since late December and while it holds below the 50-day moving average at 1.1092, the bearish move might continue. Support might be found at the 1.0900 area. A break above 1.1172 should pave the way for 1.1249 to be retested.
GBP/USD – while it holds above the 1.2900 area the wider positive move should continue. A break above 1.3284 should pave the way for the 1.3500 area to be retested. A break below 1.2900 should pave the way for 1.2768 to be tested.
EUR/GBP – surged on Monday but while it holds below the 0.8600 mark, the broader bearish trend is likely to continue. A drop below 0.8387 might bring 0.8276 into play. Resistance might be found at 0.8600.
USD/JPY – has pushed higher and while it holds above the 50-day moving average at 109.25 the wider bullish trend should continue, and it might retest the 110.00 area. A move below 108.30 might put 107.65 on the radar.