WHERE NEXT FOR THE USD?

THE WEEKLY FX DRIVE THRU

INTRODUCTION:

Wow… what a crazy end to the week, as NFP misses. Only 38,000 new jobs added in May, way below the expectations of 160,000 and then to rub salt in the wounds, the April number of 160,000 was revised down to 123,000.

Make no mistake these are dreadful numbers when you look at the two months together.

The unemployment rate fell from 5.0% to 4.7%, due to the participation rate and average hourly earnings met the 0.2% gain that was expected.

I still ask myself why don’t the US employment office delay the numbers a week so that the market can have accurate data? All these estimates are crazy and the need for constant revisions are in my opinion bordering on an amateurish calculations seemingly being done on the back of a fag packet.

The April print was only 75% accurate. These month on month revisions are just so unprofessional. Come on, for God’s sake, if this was a private business HR would be sacked and heads would roll!

Taking my macro view, given the fact that up to now the U.S. jobs data has been really good and surprisingly consistent, I am looking at these numbers as a one off. But it also questions the validity of the in line ADP numbers the day before? That aside I doubt that June will be on the table for a rate hike, but given the quite HAWKISH comments by Janet Yellen a couple of Fridays ago in Harvard, I would say July could still be on the table. It does however place the FED in an awkward position. Please note I am by no means encouraging more damn dithering from Janet Yellen and her chaps.

The Chinese data is also questionable and for most of 2014, if you recall, the Canadian government had released bad jobs data that had errors running for months. This is 2016 not 1956, why can’t we have good clean accurate data? If I were a skeptical person I would say that grey numbers rather than black and white suit the politicians… Jesus… maybe I am skeptical after all!

Moving on…

From a trading perspective, May was a great month and THE PREMIUM SERVICE is ahead of target for the year 2016. When you consider that in February all gains were wiped out, due to power outages and no ISP for 2/3 days, I am absolutely delighted.

My leaping around the office has however been short-lived as on NFP I decided to stick with some open trades and albeit they are small positions, I am carrying a few loss trades at the moment. However, I added some extra trades at extremes after NFP so I am looking for these the come through next week.

As I have written over the past two weeks, we are entering a period of extreme volatility given the numbers of high profile events coming up on the calendar. Looking forward I see no reason why the chop fest should not continue. We are in a holding pattern like an A380 swooping around over the English countryside. Yellen speaks again on Monday this week; lets see what she says now following a bad NFP. I just think that until the FED plays its hand we will chop one way and then the other. We have BREXIT, we have GREECE, we have THE DONALD, CRAZY BERNIE and CROOKED HILLARY for a side show as well, but in my opinion it is the FED that holds the key to deliver a move and some stability.

THE FX MARKET PLACE:

LAST WEEK’S NEWS – MY THOUGHTS:

Last week I know, from a Forex perspective will revolve around the NFP data (already covered in the introduction) and I can completely understand those thoughts.

From my perspective though prior to the NFP data three news events stuck out for me.

Firstly, the AUD GDP; what a great number and the AUD/USD rallied well, the AUD/NZD looked like it was 1.0900 bound and then into and through the European session the AUD started to weaken and all gains were eroded and then some more. Obviously on the poor NFP numbers the AUD/USD has rallied back to highs once more but my underlying feeling is that we will see this pair once again head lower towards 0.7200. I feel it will break lower probably to 0.7050 and do not forget that the YTD lows are at 0.6825.

This coming week on Tuesday at 1230AM EST, Glenn Stevens (RBA Governor) is on the spot with a RBA statement. This will be a true indicator, or maybe just an opinion, on how the AUD economy is performing. Are we heading to 0.7200 or 0.7500 with the AUD/USD?

Secondly, Mario Draghi produced a non-event snooze fest for his ECB Press Conference last Thursday. For this result he deserves a good pack on the back. Mario basically stated it is a wait and see to let all the extraordinary measures make their way through the markets.

Rather surprisingly, I asked the question in my closing comments of last week’s blog would Draghi announce an “escape plan for the EUROZONE with regards to BREXIT”. I called it Plan P. Draghi stated that the EUROZONE had a plan should BREXIT happen. Do you believe him?

For me, I doubt it’s detailed, the meeting minutes page would have the heading June 23^rd UK BREXIT; underneath written “Oh Feck”. That would be about it I think. Maybe a comment to ask Angela for more money!

I am still a believer in divergence and although I took just very small profits on a EUR/USD short fading the NFP move last Friday, I still believe that the EUR/USD is heading lower. I am looking to short again around 1.1400.

Draghi did what every central banker does, adjusted the GDP numbers and presented all attendees at his press conference with a crystal ball, and I do not mean the 3xCD Prince release, rather a prediction into the future about inflation objectives. All complete bulls**t, the best guestimate is now for 1.6% in 2018, no way close to the 2% target. We are all supposed to be really excited by this lack-luster number. Ewald Nowotny Austrian Central Bank governor and member of the ECB governing council, looked as if he was hiding a semi based upon how excited he appeared on CNBC talking about 1.6% being close to 2.0%. That could have just been the interviewer though!

Bottom line; the EUROZONE despite improving PMi’s is still patchy in recovery and frankly, it requires structural reforms rather than ECB policy to move the combined EUROZONE growth and inflation performances forward. Takeaway Germany and the EUROZONE economic performances look really poor.

Nevertheless, I am still bearish the EUR/USD.

Thirdly, we had a nonsense meeting with OPEC. These OPEC meetings nearly always under deliver on policy; OPEC is like the EUROZONE in the sense that collectively they can never agree on anything.

The oil industry as I have spoken about before is full of HIGH RISK market players. Hedge funds love oil because it is so speculative. Basically it’s a drill baby drill environment or at the moment a pump baby pump existence.

The oil price, as I see it around $50.00 for WTi is a price that would encourage more drillers back into the market. The eyes of GREED will be wide open at $50.00 a barrel; hence the price drops as over supply concerns are raised once again. I saw it earlier in the week but forgot to print out a copy of all the oil tankers waiting to unload Oil to refineries dotted around the globe.

The rig count was up by “9” on Friday last week. On the data print Oil was taken to the woodshed and given a good spanking.

There are still supply and demand issues surrounding the future oil price, this fact has NOT gone away and if more drillers re-enter the Oil market they will only exacerbate an already fragile price spike. Will we see WTi sub $40.00 again? Maybe, who knows, the facts are the oil market has real issues on supply and demand that producers are incapable of fixing because of GREED.