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Yen, Euro to Outperform vs. Dollar on Soft US Jobs Report

Yen, Euro to Outperform vs. Dollar on Soft US Jobs Report

2013-05-03 07:53:00
Ilya Spivak, Head Strategist, APAC
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The Euro and the Japanese Yen are likely to outperform against the US Dollar if April’s employment report falls short of economists’ expectations.

Talking Points

  • Yen, Euro to Outperform vs. US Dollar on Disappointing US Jobs Report
  • Australian, Canadian and NZ Dollars to Follow Risk Trends on NFP Data
  • Eurozone PPI, 3yr LTRO Announcement Moot After ECB Rate Decision

The economic calendar is relatively quiet in European trading hours. April’s UK Services PMI is expected to print unchanged from the prior month. Meanwhile, a slowdown in wholesale inflation penciled in for the March Eurozone PPI report and the weekly LTRO repayment announcement seem moot in the immediate aftermath of yesterday’s ECB rate decision. This shifts the spotlight to the US Employment report capping the week’s top tier scheduled event risk.

Expectations call for the US economy to add 140,000 jobs in April, marking an improvement from the paltry 88,000 increase recorded in March but still falling short of the 12-month trend average at 159,000. Traders will interpret the outcome through the prism of the Fed’s policy statement released earlier this week, where Ben Bernanke left the door open to either taper or expand asset purchases as needed.

With that in mind, a better-than-expected outcome is likely to be supportive for the US Dollar, particularly against the Japanese Yen where it still has a clear yield advantage. The sentiment-geared Australian, Canadian and New Zealand Dollars may likewise thrive as risk appetite swells again. Indeed, the surface-level narrative would sound quite encouraging: the ECB has finally jumped onto the stimulus train and the much-feared “Spring Swoon” in the US is abating.

A look at the details quickly tarnishes such a rosy view however. The ECB rate cut merely brought the benchmark rate closer to actual overnight borrowing costs, which have averaged around 0.1 percent for nearly a year. That makes for a change in policy that is more cosmetic than anything else. Meanwhile, a recent firming in US news-flow over the past week has mostly come from March releases. April’s activity surveys have printed uniformly weaker however, warning that optimism in a swift bounce-back for the world’s largest economy may be misplaced.

A disappointing payrolls number would go a long way to forcing investors to take a more sober look at the global growth landscape, sparking risk aversion and pushing the Yen higher against the spectrum of its G10 counterparts as carry trades unwind. The US Dollar would likely weaken in such a scenario as the possibility of an expanded Fed QE effort enters the conversation. In fact, the Euro may far particularly well against the greenback as the ECB’s paltry easing efforts are sized against the far more robust efforts of its counterpart across the Atlantic. As such, we remain long EURUSD.

Asia Session:

GMT

CCY

EVENT

ACT

EXP

PREV

23:30

AUD

AiG Performance of Service Index (APR)

44.1

-

49.6

1:00

CNY

Non-manufacturing PMI (APR)

54.5

-

55.6

1:30

AUD

Producer Price Index (QoQ) (1Q)

0.3%

-

0.2%

1:30

AUD

Producer Price Index (YoY) (1Q)

1.6%

-

1.0%

Euro Session:

GMT

CCY

EVENT

EXP/ACT

PREV

IMPACT

6:00

CHF

UBS Real Estate Bubble Index (1Q)

1.17 (A)

1.11

Low

8:30

GBP

PMI Services (APR)

52.4

52.4

Medium

8:30

GBP

Official Reserves – Changes ($) (APR)

-

202M

Low

9:00

EUR

Euro-Zone PPI (MoM) (MAR)

-0.2%

0.2%

Medium

9:00

EUR

Euro-Zone PPI (YoY) (MAR)

0.6%

1.3%

Medium

9:00

EUR

EC Releases Economic Growth Forecasts

-

-

Low

10:00

EUR

ECB Announces 3yr LTRO Repayment (€)

-

2.3B

Medium

Critical Levels:

CCY

SUPPORT

RESISTANCE

EURUSD

1.2996

1.3177

GBPUSD

1.5491

1.5585

--- Written by Ilya Spivak, Currency Strategist for Dailyfx.com

To contact Ilya, e-mail ispivak@dailyfx.com. Follow Ilya on Twitter at @IlyaSpivak

To be added to Ilya's e-mail distribution list, please CLICK HERE

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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