Tiomarkets Daily Commentary 3 April 2020

The first Friday of a new month is usually once that garners much attention. The release of US Non-farm payroll data is probably the most watched release of the month, acting as a barometer for the health of the US economy. For many months now we have seen a strong and progressive growth in the number of new jobs created, taking the unemployment rate to record lows around 3.5%. Equity markets soared to all time highs and love him or hate him, the ‘Trump economy’ has been booming. Then the shock to the economy that no one could have predicted - Coronavirus. In the space of 2 weeks 10 million Americans file for unemployment benefits and many more lose their jobs. At the extreme, equity markets gave back all the gains since President Trump was elected. So what would be the relevance of today’s number, a number that even the most experienced economist struggled to predict?

The problem with the NFP data is that much of it comes from the first half of the month. While the effects of the current pandemic were starting to be felt in the US, it was only in the second half of March that the full force would hit. The headline number of a loss of 701,000 jobs along with the unemployment rate rising to 4.4% is virtually meaningless. Not something I ever thought I would write, but it’s true. And for the most part the post data price action would confirm that was how most FX market participants saw it. Flows are still very much driven by what investors need to do rather than by what they want to do. EURUSD would test the waters below 1.0800 touching 1.0773 before ending at 1.0810. GBPUSD would also test lower, dropping down to 1.2206 before bouncing to close at 1.2270. USDJPY would end higher on the day at 108.45 having dipped as low as 107.80. All pretty benign price action given the magnitude of the number. XAU would be the major beneficiary ending the day back at 1,620. Oil would also rally but more in the hope that Russia and Saudi Arabia would agree to reduce their daily output. And finally the equity markets. While some of Wall Street’s largest institutions are saying the lows for equity markets are in, rallies are still struggling to hold. Having touched 22,500 earlier in the week the DJ closed lower by 1.7% at 21,052. While volatility has somewhat subsided, the doom and gloom continues. All eyes this week to see if the 'curve' is flattening in the worst affected parts of Europe as well as NY state.

GBP has been particularly volatile over the past month, dropping from 1.3200 to a low near 1.1400. Rallies this week have thus far been restricted to 1.2485. ‘What doesn’t go up must come down’ as the saying goes and with the repeated rejection this week of 1.2500, Friday would see a test lower. However, the ‘proud pound’ would hit the proverbial brick wall at 1.2205. So what was lurking? The 200 hour MA. It doesn’t always work, but on this occasion a moving average was enough to stop the rot. Keep an eye on that line as the new week begins.