Risk appetite is higher in the second half of the week. The equities markets continue the recoveries from the recent slump as the dollar fails to impress ahead of the US job reports.
Market Wrap
Dollar and Equities
Safe havens are subdued again with the dollar leading the pack. The greenback is set to close the week bearish after it failed to build on last week’s advantages. Meanwhile, traders will look forward to the US job report to close down the dip or even turn the week green. However, disappointing employment data will increase the pressure on the world’s reserved currency.
With the dollar weakening, the equities market is recovering fast from the shocking quick slump in the early days of the week. The S&P 500 is thus close to its 7th consecutive green week. The index currently flies above 4200, close to last week’s 4219 record high. High beta instruments are benefitting from the current bright risk atmosphere.
Commodities
In the commodities market, WTI oil is about to close the second consecutive profit week although further rallies seem to be capped below $68. However, the second part of the week has been somewhat red for the black gold as it falls from $66.7 to the current level of around $64.5. Meanwhile, a bearish dollar and a struggling treasury yield have lifted Gold above the 1800 psychological resistance to its highest price in nearly three months.
Forex
In the FX space, the dollar index rammed down below 91 as the broad weakness is felt in the currency market. Meanwhile, the European currencies are back on the front foot toward the end of the week as the Sterling joined the Euro and Swissy to retrace some of the earlier losses. Also, CAD continues to lead the gainers despite a little slump forced by the plummeting oil prices. Aussie and Kiwi are also gaining marginally as the market mood turned positive despite some disappointing data earlier in the week. This leaves the safe-haven dollar (unless a massive bullish NFP) and yen the bearish fx among the majors as the weak closes today with the US non-farm payroll and unemployment data.
The NFP – how can the figures influence the dollar?
Today’s non-farm payroll report is very important to the Fed. Investors and traders know this. The faster the economy runs toward maximum employment, the closer the Fed considers tightening up its monetary policies. March’s employment change almost doubled February’s. But the market is not expecting a drastic increase compared to last month’s data. The consensus data for April comes out at 990k against March’s 916k. However, a surprising 1.2 million or more would lift the dollar massively as traders and investors will start looking for a rate hike clue in the next fed comments and meetings. If the data miss expectation below 900k, the pressure on the dollar is expected to aggravate at least in the nearest term.
The outcome – exceeding or beneath expectation- is expected to have a short-term impact on the greenback. At the end of the event, investors will go back to the long-term outlook. Even if the unemployment rate drops to 5.8% as expected or slightly below, there will still most likely be over 8 million unemployed persons in the US. It now remains to be seen whether this is close to Fed’s maximum employment measure. Although the Fed chair said in one of his last comments that the bank’s monetary team would tell when they are close to that mark, however, investors will want to predict ahead of time.
The underlying sentiment
Prior to the pandemic, in 2019 Q4, the US enjoyed the lowest unemployment rate (5-6 million unemployed persons) since 1975. Perhaps, the Fed will be satisfied around 6-7 million but with the pandemic not yet out completely, cautious statements might still follow until the 3rd quarter of the year. Fed’s policy tightening is expected to be the real support the dollar needs to stage a massive recovery after falling for over a year. However, before that, traders’ eyes will be on the NFP coming later today.
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