FX Update: GBP shrugs off bad employment numbers.

FX Update: GBP shrugs off bad employment numbers.

Forex
John J. Hardy

Chief Macro Strategist

Summary:  Some rather shocking payrolls data and higher jobless claims data from the UK today pushed UK short rates sharply lower, although sterling has rebounded after an initial sell-off. USD traders are awaiting the US April Retail Sales data and an opportunity to test the market reaction to the US debt ceiling limit issue as the White House and key congressional members are set for a powwow later today.


Today's Saxo Market Call podcast

FX Trading focus:

  • Ugly UK payrolls data hits sterling and UK short rates. The latter stuck lower while sterling impressively rebounded. Key zone of uncertainty for GBPUSD here.
  • USD traders awaiting US Retail Sales data today and debt ceiling talks.

Trading bias notes:

  • USD: Key event risks today including Retail Sales and US debt ceiling talks. EURUSD bears will want 1.0900 to provide resistance, although no real reversal unless we pull back to 1.1000.
  • NZD: After big reversal, bears may continue to fade NZDUSD rallies that stay short of 0.6300 area. AUDNZD heavy after Chinese data – needs to find support near 1.0700 or this bounce from recent lows looks endangered.
  • GBPUSD: impressively brushed off very ugly numbers today. Risk reward for bears to test short case from here to perhaps 1.2575 (abandoning above 1.2600) or to wait for follow through below 1.2450.
  • EURSEK: noted good risk/reward for testing short case yesterday in 11.30 area, but no follow through on sell-off and sub-11.25 attempt this morning. Now neutral.

Sterling: somehow ignores ugly employment data.
A few surprising UK employment numbers rolled in this morning, include a massive drop in the “payrolled employees” data that PAYE sends out to -136k. The number is so bad that one can’t help but imagine there might be a revision, but many job categories saw weakness, so there revision would have to be extreme to erase the concerning signal. The April Jobless claims number was also a worry, jumping unexpectedly to 46.7k vs. +26.5k in March. That’s the worst number since the volatile data of early 2021 and above the pre-pandemic range of monthly claims. UK 2-year rates were marked about 10 basis points lower and sterling initially dropped sharply, only to recoup all of its losses and then some even while the reaction in rates largely stuck lower. I am putting sterling on negative watch after this data point, but EURGBP certainly not cooperating yet on that account. More on GBPUSD thoughts below.

Chart: GBPUSD
GBPUSD once again found support, this time just before hitting on the critical 1.2450 area in the wake of the weak employment data today and rallying back to where it came from above 1.2500. To neutralize this recent sharp sell-off/bearish reversal, the pair needs to retake 1.2600+. Barring that development, the more compelling technical area now after this morning’s downside test is the 1.2450 zone that could open up for a deeper sell-off as newly arrived bulls will be disappointed that the recent attempt above the former cycle high of 1.2450 failed to hold, also stimulating fresh bearish interest.

Source: Saxo Group

USD: today’s Retail Sales and Debt ceiling talks are the next steps
The USD has backed off its recent strength this week, as EURUSD teased 1.0900 in this morning and USDJPY eased back after the rally extension yesterday. US Retail Sales for April on the docket today, with a slightly softer number expected (and reminder that this data is nominal). US home improvement giant Home Depot has been out reporting today saw its top-line results below expectation and guided for far revenue for this financial year to fall from 2 to 5 percent. Much of their current “struggle” is from the hangover after the incredible growth spurt from the pandemic-years scramble for new housing and home improvement on record low mortgage rates. More interesting for the broader and lower level retail picture is up over the next couple of days as Target reports tomorrow and Walmart on Thursday.

Today also features the latest debt ceiling talks between the Biden White House and Congressional members, with some Republican Senators apparently hoping that House Leader McCarthy can be brought to soften up his position, with the latter in an untenable situation as any softening might bring rebellion in the Republican ranks. It is very difficult to measure market stress around this issue, but at least today offers a chance to measure how reactive the market is to both developments and non-developments (another walkout with no progress…).

Table: FX Board of G10 and CNH trend evolution and strength.
FX trends are very weak, with frequent mean reversion. Strongest signals are still below an absolute value of 2, which is rare.

Source: Bloomberg and Saxo Group

Table: FX Board Trend Scoreboard for individual pairs.
Little to point to in new developments – awaiting USD status after today’s important data release.

Source: Bloomberg and Saxo Group

Upcoming Economic Calendar Highlights (All times GMT)

  • 1200 – Poland Apr. Core CPI
  • 1215 – US Fed’s Mester to discuss economic and policy outlook
  • 1230 – Canada Mar. Manufacturing Sales
  • 1230 – Canada Apr. CPI
  • 1230 – US Apr. Retail Sales
  • 1315 – US Apr. Industrial Production and Capacity Utilization
  • 1400 – US May NAHB Housing Market Index
  • 1400 – ECB President Lagarde to speak
  • 1400 – US Fed’s Barr (Voter) to testify before House Financial Services Committee
  • 1615 – US Fed’s Williams (Voter) to speak
  • 1830 – US Fed’s Goolsbee (Voter 2023) to speak
  • 1915 – US Fed’s Logan (Voter 2023) to speak
  • 2350 – Japan Q1 GDP 
  • 0130 – Australia Q1 Wage Price Index

Quarterly Outlook

01 /

  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

  • Equity Outlook: Will lower rates lift all boats in equities?

    Quarterly Outlook

    Equity Outlook: Will lower rates lift all boats in equities?

    Peter Garnry

    Chief Investment Strategist

    After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto...
  • FX Outlook: USD in limbo amid political and policy jitters

    Quarterly Outlook

    FX Outlook: USD in limbo amid political and policy jitters

    Charu Chanana

    Chief Investment Strategist

    As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ...
  • Macro Outlook: The US rate cut cycle has begun

    Quarterly Outlook

    Macro Outlook: The US rate cut cycle has begun

    Peter Garnry

    Chief Investment Strategist

    The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c...
  • Commodity Outlook: Gold and silver continue to shine bright

    Quarterly Outlook

    Commodity Outlook: Gold and silver continue to shine bright

    Ole Hansen

    Head of Commodity Strategy

  • FX: Risk-on currencies to surge against havens

    Quarterly Outlook

    FX: Risk-on currencies to surge against havens

    Charu Chanana

    Chief Investment Strategist

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperfo...
  • Equities: Are we blowing bubbles again

    Quarterly Outlook

    Equities: Are we blowing bubbles again

    Peter Garnry

    Chief Investment Strategist

    Explore key trends and opportunities in European equities and electrification theme as market dynami...
  • Macro: Sandcastle economics

    Quarterly Outlook

    Macro: Sandcastle economics

    Peter Garnry

    Chief Investment Strategist

    Explore the "two-lane economy," European equities, energy commodities, and the impact of US fiscal p...
  • Bonds: What to do until inflation stabilises

    Quarterly Outlook

    Bonds: What to do until inflation stabilises

    Althea Spinozzi

    Head of Fixed Income Strategy

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain ...
  • Commodities: Energy and grains in focus as metals pause

    Quarterly Outlook

    Commodities: Energy and grains in focus as metals pause

    Ole Hansen

    Head of Commodity Strategy

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities i...

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)

Saxo Bank (Schweiz) AG
The Circle 38
CH-8058
Zürich-Flughafen
Switzerland

Contact Saxo

Select region

Switzerland
Switzerland

All trading carries risk. Losses can exceed deposits on margin products. You should consider whether you understand how our products work and whether you can afford to take the high risk of losing your money. To help you understand the risks involved we have put together a general Risk Warning series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. The KIDs can be accessed within the trading platform. Please note that the full prospectus can be obtained free of charge from Saxo Bank (Switzerland) Ltd. or the issuer.

This website can be accessed worldwide however the information on the website is related to Saxo Bank (Switzerland) Ltd. All clients will directly engage with Saxo Bank (Switzerland) Ltd. and all client agreements will be entered into with Saxo Bank (Switzerland) Ltd. and thus governed by Swiss Law. 

The content of this website represents marketing material and has not been notified or submitted to any supervisory authority.

If you contact Saxo Bank (Switzerland) Ltd. or visit this website, you acknowledge and agree that any data that you transmit to Saxo Bank (Switzerland) Ltd., either through this website, by telephone or by any other means of communication (e.g. e-mail), may be collected or recorded and transferred to other Saxo Bank Group companies or third parties in Switzerland or abroad and may be stored or otherwise processed by them or Saxo Bank (Switzerland) Ltd. You release Saxo Bank (Switzerland) Ltd. from its obligations under Swiss banking and securities dealer secrecies and, to the extent permitted by law, data protection laws as well as other laws and obligations to protect privacy. Saxo Bank (Switzerland) Ltd. has implemented appropriate technical and organizational measures to protect data from unauthorized processing and disclosure and applies appropriate safeguards to guarantee adequate protection of such data.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc.