While US markets were able to shrug off a disappointing US jobs report on Friday the positive close wasn’t enough to stop a second successive lower weekly close, as investors weighed up the prospects for a move on US interest rates at next month’s Federal Reserve rate meeting.

For all the rhetoric from various Fed officials that the June meeting is a “live” meeting, along with the claims that at least two rate rises this year is a reasonable expectation, the narrative doesn’t match the underlying data, which remains on the soft side, and would appear to support the expectation that we are highly unlikely to get a move on rates next month.

While the hawks can take the positives from of a jump in average hourly earnings to 2.5%, the fact that we saw the April payrolls number come in at 160k, pretty much in line with the ADP report was an unwelcome surprise, and an even bigger disappointment to those expecting a pick up in the data after a weak Q1 GDP report.

What is more perplexing is the sharp rise in consumer credit that we saw in March which rose by another $29.7bn, almost double expectations to a historic high of $3.6trn. This is despite recent retail sales and durable goods numbers remaining lacklustre, begging the inevitable question as to what US consumers are spending that money on. We may get some insight on that later this week when retail sales for April get released.

The Federal Reserve could find itself in the unwelcome position of seeing prices start to push higher at the same time that the US economy is starting to slow down. This could become an even bigger worry in light of the rise in the prices paid components in the economic reports seen last week out of the ISM, which if sustained could act as a further brake on the US economy.

At the most recent FOMC meeting, Fed officials removed the reference to global economic and financial developments posing risks to their outlook. Given the weakness seen in some of the recent Chinese economic data this may have been a little premature, as the latest Chinese trade data for April once again missed expectations.

Chinese exports showed a decline of 1.8%, while imports also slid sharply by 10.9%, after a significant improvement in March, which helped the Q1 GDP numbers come in at 6.7%, and at the same time raised hopes that China’s economy was starting to stabilise.

Since then the latest PMI reports for April have shown that economic activity has slowed down, which the weekends trade numbers would appear to confirm. If the latest April industrial production and retail sales data out this coming weekend also show similar softness then it’s reasonable to suppose that we could well see further easing measures from the People’s Bank of China in the coming weeks.

This shouldn’t come as a surprise given the Chinese central banks comments on Friday, just prior to the US payrolls numbers.

Despite the lacklustre nature of Friday’s US data and broader economic data in general oil prices continue to remain fairly resilient on an expectation that a tightening of supply will eventually happen. The expectation that the Alberta fires could rage for months, potentially affecting output, along with a change in the top of the Saudi Arabian oil ministry and a report that new oil discoveries are down at a 60 year low has helped underpin prices.

EURUSD – the euro has continued to decline breaking below the 1.1420 area and potentially opening up a move towards the April lows at 1.1220. Only a move below the 1.1140 level, the lows at the end of March argues for a deeper move towards 1.1050. We need a recovery back through the 1.1480 level to stabilise.

GBPUSD – the pound has continued to remain under pressure after peaking at 1.4770 last week, pushing below the 1.4460 area. The key day reversal continues to loom large over any potential rebound and we need to see a recovery through the 1.4600 level to stabilise. Only a break below 1.4300 would undermine the bullish scenario.

EURGBP – having failed to push above the 200 week MA the bias remains to the downside while below 0.7950. We have neckline support at 0.7750 from the March lows which, if broken could trigger a sharp down move. A move and close above 0.7940 retargets the 0.8000 area.

USDJPY – the next support for the US dollar currently sits down at the 200 week MA at 105.20. A weekly close through here has the potential to open up the 100 level, but for now the risk remains for a recovery back through the 107.80 area, which could well see a return to the 109.00 area.

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