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Investors Sell The Fact As Trump Spoils The Jobs Data Surprise.

By Alex Edwards

It was a generally steady morning session for the most part on Friday as investors and traders geared up for the US non-farm payrolls data that afternoon. That said, GBP did get a bit of a boost from the release of better than expected UK Manufacturing PMI, which printed at 54.4 vs. forecasts for 53.5. GBP/USD was also pulled higher by a better bid EUR/USD that morning which broke back through the 1.17 figure.

The US jobs data came in much better than expected come the afternoon with the employment change coming in at +223k vs. expectations for +189k and the unemployment rate printing at 3.8% vs. 3.9%. The dollar strengthened on the news, although the effect wasn’t completely clear in GBP/USD – a good sign for the pound perhaps? The data wasn’t a complete surprise though, it has to be said, as Trump dropped some strong hints that the number would be positive in one of his tweets. He wrote “Looking forward to seeing the employment numbers at 8:30 this morning”.

The pound is steady this morning and opens at 1.3365 vs. the dollar. Data wise, the focus this week turns to a series of UK PMIs. A few MPC members are also due to speak throughout the next 5 days too. It isn’t a busy one on the data front but that’s not to say it won’t be any less volatile compared to other weeks.

All eyes were on US non-farm payrolls on Friday. Although President Trump may have spoilt the surprise, the data was still a big beat and the US dollar strengthened a little on the news (see above). The wages data was also strong and showed that average hourly earnings were up 0.3% vs. 0.2% expected. The dollar strength was most tangible in the USD/JPY cross, the pair rallying from 109.10 to 109.75. It was less tangible vs. the likes of the euro and pound, perhaps as investors offered the fact (having bought the rumour following Trump’s tweet).

The trade war rhetoric has been an ongoing one over the weekend. G7 ministers met and the EU, China and Canada took the chance to make it very clear they were not happy by the decision of the US to impose new tariffs on steel and aluminum imports. Canadian PM Trudeau said that the move by the US was “totally unacceptable”. There hasn’t been too much of a reaction in currency markets yet, but the story is likely to bubble away in the background, and so could have an impact on currency markets at some point. Watch this space.

The docket for US data is looking a bit thin this week with ISM Non-Manufacturing PMI being the biggest release of the lot. The ongoing trade war, Trump tweets and political invents in Europe will likely be the key drivers.

EUR/USD opens stronger than it did on Friday but uncertainty surrounding the Italian political situation will still be influencing short-term moves. Snap elections have been avoided thanks to the confirmation of the 5S-League coalition government, but the market will probably remain concerned given the fiscal risks and tension this coalition brings into the EU.

The EURUSD traded within a 1.1617-1.1718 range and the next levels to watch for the start of the week are 1.1608 (support) and 1.1728 (resistance). Like the US data docket, it’s a bit thin this week. ECB President Draghi is speaking on Tuesday but that’s about it as far as key economic releases are concerned for the EU.

The Aussie dollar is broadly stronger this morning, supported by the release of better than expected April retail sales (0.4% vs. expected 0.3%), Q1 company profits (5.9% q/q vs. expected 3%) and Q1 inventories (0.7% q/q vs. expected 0%). The AUD/USD pair has been on a steady incline since and has pushed through the 76 US cents level.

Markets will now turn their attention to the RBA rate announcement, albeit it’s due to be a non-event later tonight as the central bank is expected to leave interest rates on hold. GDP is then released on Wednesday, followed by Thursday’s trade balance.

The loonie ended Friday’s session flat versus the USD at 1.2960 even as the USD strengthened, trade disputes continued and WTI crude lost 2%. The CAD lost more than 0.25% after the US employment reports but recovered towards the end of the day.

Uncertainty around NAFTA negotiations and the recent negative performance of Crude will continue to put downward pressure on the loonie. Trump is now talking about the possibility of pursuing separate NAFTA deals with Canada and Mexico, so we should expect more short-term volatility.

From a technical perspective, support for the USDCAD sits around 1.2915/20, which is close to breaking now, while 1.3022 should act as resistance.

The New Zealand Dollar slipped below its previous 0.7 level to open in Wellington at 0.6984. Spurred downwards by positive employment figures out of the US, the kiwi was the unfortunate recipient of a resurgent greenback which rose against most currencies.

It recovered as the day went on, supported by better than expected Australian economic data and the push higher in AUD/USD. And so NZD/USD is back through .7000 in London. Looking forward, domestically, the economic calendar remains bare, with little to note. The market now turns to the developing headlines as an emboldened Trump looks to impose tariffs on key allies. The trade tensions have shaken markets in the western hemisphere and remains the focus of the week.