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Weak Jobs gain sink the Dollar while stocks climb to new records

A weaker-than-forecast US Employment gain dragged the Dollar Index (USD/DXY) to its lowest since June last year. US Treasury yields fell. The benchmark Ten Year yield closed at 2.16% (2.21% Friday). The Euro climbed 0.6% to close at 7 month highs. Equities brushed off the disappointing data and climbed with the NASDAQ (USTEC) finishing at fresh record highs.

 

The US economy created a total of 138,000 jobs in May against a forecast gain of 180,000. Gains from the previous two months were revised lower. The Unemployment rate dropped to 4.3% from 4.4% due to a fall in the Participation rate.

 

EUR/USD – finishes up 0.6% at 1.1285.

USD/JPY – lower, closes at 110.45 (111.45 Friday).

GBP/USD – mild gains against the weaker Dollar, ends at 1.2890 (1.2845 Friday). Sterling slips at this morning’s open to 1.2870 on the weekend terrorist attack news.

AUD/USD – climbs off the lows to close at 0.7440 (0.7385 Friday).

 

Outlook: The disappointing US Employment data hurt the Dollar while US yields dropped. Most market participants still expect the Fed to raise rates when they meet this month. The question now is whether there will be any more hikes in the second half of this year. Without the yield support, the Dollar will stay weak.

 

There are no major economic data releases today with most of Europe closed (Whit Monday holiday). The US economic calendar is light. US ISM Non-Manufacturing PMI for May is out later (GMT 2 pm, 5 June/AEDT 12 am, 6 June) – PMI is forecast at 57.3 from the previous 57.5.

The focus this week moves across to the Continent with the ECB meeting and the UK election (both on Thursday).

 

The ECB has told the markets that it will keep interest rates at present or lower levels if needed. Traders have shrugged this off, expecting the ECB to drop this downside bias. The EUR/USD has been the main beneficiary of the Dollar’s weakness.

 

Sterling, meantime has been unable to benefit much given the Dollar’s broad-based weakness. This morning GBP/USD was marked down 20 pips immediately following the latest attacks in London over the weekend. The Pound has lost ground against the Major currencies. EUR/GBP has risen over 4% in the past month. GBP/JPY has dropped by 3% since early May.

 

EUR/USD – closed at a seven month high at 1.1285 from Friday’s 1.1210. The Euro has strong resistance at 1.1300 and 1.1320. There is good support at 1.1235 and 1.1200. The latest CFTC/Reuters report saw speculators increase net EUR longs to +EUR 72,869 contracts from the previous week’s +EUR 64,845 contracts. The total net speculative Euro longs are the largest since late 2013. That’s a significant statistic for the market positioning in the Single currency. And would keep one cautious about keeping a long Euro position at these levels.

USD/JPY – fell to close at 110.45 from 111.65 Friday. The fall in the US Ten Year Treasury yield to 2.16% from 2.21% weighed heavily on the Dollar-Yen. Strong support lies at 109.85. There is resistance at 111.10. The latest CFTC/Reuters report saw a small rise in net speculative JPY shorts to -JPY 52,275 from -JPY 51,656 contracts. Unlike the positioning in the Euro, the market is short of JPY and long US Dollars. This will keep USD/JPY under pressure. Any further falls in the US Ten year treasury yields will push the Dollar lower, potentially to 108.50.

GBP/USD – Sterling has been unable to benefit from the broad-based Dollar weakness. The 1.30 level has not been overcome since we broke below it. GBP/USD has resistance at 1.2900 while there is immediate support at 1.2840. Speculators increased their GBP shorts to -GBP 29,651 contracts from -GBP 23,867 contracts. That’s a far cry from the record lows this year in late March of -GBP 107,844 contracts. Even in the current weak Dollar scenario, expect the Pound to have limited gains… perhaps even drift lower.

AUD/USD – Support lies at 0.7420 and 0.7400. Immediate resistance is at 0.7450. Expect the Aussie to grind higher from here. The RBA meets on its rates policy tomorrow (GMT 4.30 am, 6 June/Local Time 2.30 pm, 6 June). While no change in rates is expected in their meeting, traders will focus on the RBA’s rate statement and its economic outlook. In the latest CFTC/Reuters data, speculators increased their long Aussie positions to +AUD 3,067 from +AUD 2,635 contracts. That’s a mild gain and the net spec Aussie longs have fallen since the highs reached in late March (+AUD 53,138 contracts). Trade the range between 0.7400 and 0.7500 for now.

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