Currencies and equities are trading lower this morning following
weaker data from the U.S. and Europe. The next 2 days will be
exceptionally busy in the foreign exchange market with the ECB
meeting and non-farm payrolls on the calendar. For only the second
time in 15 months, Germany experienced an increase in unemployment.
PMI numbers were also revised sharply lower due to a deeper
pullback in Italian manufacturing activity. The EUR/USD suffered so
significantly from these numbers that the upward trending channel
is broken, leaving the pair vulnerable to a run down to 1.30. There
is some near term support at 1.3116, where the 100-day SMA sits.
Rising bond yields and signs of weakness in the Eurozone economy
will make it difficult for ECB President Draghi to put on a happy
face and say there is no need to consider additional stimulus.
Meanwhile the drop in private sector payrolls drove the U.S.
dollar sharply lower against the Japanese Yen. According to ADP,
U.S. companies added 119k jobs to their payrolls last month
compared to a downwardly revised 201k. Although ADP has a poor
record of tracking non-farm payrolls, the decline in employment
change is consistent with the rise in jobless claims. Interestingly
enough however, economists are still looking for payrolls to rise
more in April compared to March. The current forecast is for
payroll growth of 161k and the overriding argument is that even
though all signs point to weaker labor market conditions, the
absolute level of jobless claims is consistent with 150k-160k
payrolls. We'll leave it to you to decide whether to believe this
argument or not. Thursday's ISM non-manufacturing report will
provide additional information on the level of job growth (or lack
thereof) in the service sector. At the end of the day, we only see
2 realistic scenarios for Friday's NFP report - bad or really bad.
Unfortunately neither of these scenarios will be dollar positive.
Factory orders are scheduled for release at 10:00am. A sharp
pullback is expected after a nice rise in March.