Dismal Payrolls Sinks US Yields, Dollar Slides, Reverses Gains

  • Michael Moran , Senior Currency Strategist at ACY Securities

  • 07.06.2021 08:15 am
  • trading

Risk Leaders AUD, NZD Soar, Yen Rallies, Stocks Rise

Summary: The benchmark US 10-Year Treasury yield sank 7 basis points to 1.55% (1.62% Friday) following the release of a disappointing Employment report. US Non-Farms Payrolls added 559,000 Jobs in May, missing expectations of 650,000 jobs. While the Unemployment rate improved with a fall to 5.8% from 6.1% (and forecasts at 5.9%), the Participation Rate contracted to 61.6% (61.7%). A popular measure of the Dollar’s value against a basket of 6 foreign currencies, the USD/DXY (Dollar Index) slid 0.63% to 90.12 from 90.47 (Friday). The risk leading AUD/USD soared 0.8% to 0.7742 (0.7660) while its cousin, the Kiwi (NZD/USD) finished up 0.9% to 0.7210 (0.7140 Friday). USD/JPY, most sensitive to moves in the US 10-year yield, slumped 0.75% to 109.52 (110.28). The Euro reversed its slide, climbing 0.25% to 1.2165 (1.21280). Sterling rallied 0.3% to 1.4155 (1.4105).
The Dollar eased against China’s Offshore Yuan (USD/CNH) to 6.3895 from 6.3985. USD/SGD edged lower to 1.3245 (1.3282 Friday). Against the Canadian Loonie, the US Dollar fell a modest 0.39% to 1.2080 (1.2105). Canada saw a loss of 68,000 jobs in May, (vs f/c loss of 23,500 jobs). Wall Street stocks gained. The DOW rose 0.43% to 34,747 (34,587) while the S&P 500 added 0.82% to 4,227 (4,192). Global bond yields dipped. Germany’s 10-Year Bund yield was last at -0.21% from -0.19% Friday. UK Gilt 10-Year Rate closed at 0.79%, down 5 basis points (0.84%). Japan’s 10-year JGB yield was unchanged at 0.07%.

Other data released Friday saw Japanese May Annual Household Spending increased to 13.0%, from 6.2% in April. UK May Construction PMI was up at 64.2, beating estimates at 62.3. Eurozone Retail Sales fell in May to -3.1%, missing forecasts at -1.2%. Canada’s May Employment report missed expectations with a contraction of -68,000 jobs (vs f/c -23,500), but better than April’s -207,100. Canada’s Unemployment Rate was unchanged at 8.2%. US May Factory Orders slipped -0.6% (vs f/c -0.3%), from an upwardly revised April number of 1.4% (from 1.1%).

  • USD/JPY – The Dollar slid against the Japanese Yen to an overnight low at 109.346 from 110.28 on Friday. USD/JPY settled to close at 109.54 om New York, down 0.75%. A marked drop in the benchmark US 10-year bond yield by 7 basis points to 1.55% contrasted with Japan’s 10-year JGB rate, unchanged at 0.07%.
  • AUD/USD – The Australian Battler soared against the Greenback to 0.77451 its overnight peak before easing to settle at 0.7742 at the NY close. Australia’s 10-year treasury rate was up 2 basis points to 1.68% on Friday.
  • EUR/USD – The Euro reversed its slide against the Greenback, climbing 0.25% to 1.2165 (1.2128). The shared currency’s rally was subdued due to a fall in the Eurozone May Retail Sales report. The week ahead sees the ECB’s Monetary Policy Meeting and Interest Rate decision and statement (Thursday).
  • GBP/USD – Sterling gained on the back of the overall weaker US Dollar, settling to close at 1.4158 (1.4105) up 0.28%. The British currency stabilised after a choppy trading week.

On the Lookout: The marked fall in the benchmark US 10-year treasury yield to 1.55% from 1.62% will continue to weigh on the Greenback. This remains a key element for the US currency’s fate. A Reuter article this morning (from a Bloomberg report) featured a quote from US Treasury Secretary Janet Yellen saying that Joe Biden’s USD 4 trillion spending plan would be good for the US, even if it contributes to rising inflation and results in higher interest rates. Watch those US bond yields.
Today’s data and events kick off with Australia’s AIG Services Index for May (no forecasts, April’s number was 61.0). New Zealand is on holiday today (Queen’s birthday). Australia also releases its ANZ Bank Job Advertisements for May (April’s was 4.7%). China’s Trade report for May follows with a Surplus of USD 50.5 billion forecast (from April’s Surplus USD 42.85 billion). China’s May Imports are forecast to rise 51.5% from 43.1% while Exports are forecast at 32.1% from 32.3% (ACY Finlogix).

Japan’s Leading Economic Index for April follows (f/c 103.0% from previous 102.5%). Switzerland’s May Unemployment follows (f/c 3.1% from 3.3%). Germany’s April Factory Orders follows (f/c 1% from April’s 3% Finlogix). UK Halifax House Price Index (May) follows (f/c 1.2% monthly, 10% annual from previous 1.4% m/m and 8.2% y/y – ACY Finlogix). Eurozone Sentix Investor Confidence Index (May) is forecast at 25.5 from 21.0). US Consumer Credit Change for April rounds up today’s data releases (f/c USD21 billion from USD 25.84 billion). The week ahead also sees crucial May US Headline and Core CPI data released on Thursday (June 10).

Trading Perspective: Without yield support, the Dollar’s decline looks set to continue. That said, the week ahead sees crucial inflation data out of the US (CPI on Thursday). Janet Yellen’s comments in a Bloomberg/Reuters report this morning has not yet impacted FX yet this morning. The US 10-year yield is the key to the Greenback’s next moves. Watch for any impact following Yellen’s latest comments on inflation and its impact on US yields.

 (Source: Finlogix.com)

  • USD/JPY – keep an eye on this currency pair as it is the most closely correlated pair to the US 10-year yield. The 7-basis point drop to 1.55% from 1.62% in the 10-year US rate saw USD/JPY slump to an overnight low at 109.346, settling at 109.53 (New York close). USD/JPY has immediate support at 109.35 followed by 109.10 and 108.90. Immediate resistance can be found at 109.85 and 110.15. Expect Japanese importer buying to support USD/JPY around the 109.25/35 area. It remains heavy while the US 10-year rate stay depressed at the current level. Look to trade between 109.20-109.90 first up today. We could start to heat up in USD/JPY. Happy days!
  • AUD/USD – With stocks and asset prices higher due to continued low interest rates and improved risk sentiment, the Aussie is support. AUD/USD has immediate resistance at 0.7750 (overnight high 0.7745) and 0.7780. Support can be found at 0.7710 and 0.7670. Look for the Aussie to trade a likely 0.7680-0.7780 range to kick off the week. Pretty neutral on the Aussie at current levels. Watch the moves in the US 10-year yield.
  • EUR/USD – The shared currency rebounded off its overnight low at 1.21039 to finish at 1.2165 against the Greenback. This is a big week for the Euro with the ECB’s monetary policy meeting and rate announcement on Thursday. Will the ECB begin it’s monetary-stimulus tapering? All will be revealed at the conclusion of Thursday’s meeting and the resulting statement by President Christine Lagarde at the press conference. EUR/USD has immediate resistance at 1.2200 followed by 1.2235. Immediate support can be found at 1.2135 and 1.2100 (overnight low 1.21039). Look to trade a likely 1.2120-1.2190 range. We could be in for some fireworks in the shared currency this week.
  • USD/CAD – The Dollar eased a modest 0.39% to 1.2080 from 1.2105 Friday morning. Canada’s May Payrolls report was just as disappointing (see Summary paragraph) as that of the US, if not even more. Only a broadly based weaker Greenback enabled the Canadian Loonie to benefit. USD/CAD has immediate support at 1.2060 (overnight low 1.20627) and 1.2030. Immediate resistance can be found at 1.2095 and 1.2125. Look for a sideways trade in this puppy between 1.2065-1.2115. Prefer to buy any USD/CAD dips.

Have a good trading week ahead all.


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