FX Market View #14

The US jobs report in May released numbers of a somewhat healthy half a million new employment contracts, however this disappointed against the much higher expected figure. The let down in May came shortly after the revised April numbers heavily under achieved the 1 million new jobs target. The figures so far reveal that the US economy has still not been able to break itself loose from the weight of the pandemic. As a consequence though, the markets were not too down trodden by Friday’s report. Equity indices were on the rise as investors saw optimism in the weaker employment numbers actually keeping the Fed from raising rates anytime soon.

After the second consecutive month of disappointing jobs data, the likelihood of a bounce in the Dollar to higher levels is limited. Any build-up in Dollar growth was stopped and the trend returned to a position of further weakening. Therefore, the momentum indicators for the greenback expose the longer term trend of continued selling since the end of March. Investors are still seeking the upside correction; however a bump in US interest rates is a pre-requisite for the Dollar to show any sustainable gains. The US economy is showing signs of recovery, but not at a strong enough rate to light the currency on its own behalf.

Rising commodity prices are expected to contribute to a surge in China’s export data being released on Monday. The country’s year on year export numbers are projected to reflect growth numbers of around 30% higher than the last year. Inflation numbers in the country can possibly exceed a decade high following the release of PPI data on Wednesday. Towards the end of the week the ECB releases its policy statements and forecasts. The markets are looking for indications that can lead to a scale-back of the central bank’s bond buying programs used to stimulate the Eurozone. And finally over to the US where the May CPI-Index data will give clues to whether inflationary pressures are building.

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