Major jobs miss emboldens Fed doves

US nonfarm payrolls rose a disappointing 75,000 in May, well below the consensus for an increase of 185,000 jobs. Average hourly earnings were a tad weaker than expected, rising 3.1% compared to the 3.2% forecast.

Interest rate doves loved it. On Monday, St. Louis Federal Reserve president James Bullard became the first Federal Open Market Committee voting member to speak openly about the need to cut interest rates on risks to domestic economic growth from rising trade tensions.  The next day, Fed chair Jerome Powell said they were closely monitoring the implications of the trade negotiations for US economic growth. He didn’t say anything about cutting rates, but the similarity of his and Bullard’s concerns have rate cut doves cooing up a storm.

That will make President Trump happy. He has been berating Powell and the Fed for months because of its tight monetary policy; yesterday, he repeated his claim that Dow Jones Industrial Average would be 10,000 points higher.

EURUSD spiked to 1.1325 from 1.1261 while USDJPY plunged to 107.89 from 108.49.

USDCAD broke below major support at 1.3322 following the US employment data and another robust domestic employment report. Canada added 27,700 jobs in May while the unemployment rate slipped to 5.4% from 5.7%. For USDCAD bears, the currency is firing on all cylinders. The combination of strong Canadian data, soft US data, US rate cut fever and a rebound in crude oil prices are weighing on prices. The USDCAD technicals are bearish following the break of 1.3322 (the 50% Fibonacci retracement of the October/December 2018 range) which targets the 61.5% Fibonacci level of 1.3116 and the 76.4% level of 1.2990.  

The week ahead is heavy on data and very light on central bank monetary policy meetings. Nevertheless, as has been the case for the past few months, the US and China trade dispute will dominate trading. There are a lot of Chinese data on tap including trade, Inflation and Retail Sales which if weaker than expected, will reinforce fears of a global economic slowdown. China is expected to release its list of “unreliable” foreign entities which could spark another shift into safe-haven currencies.

President Trump ignited risk-aversion concerns with his threat to impose 5% tariffs on Mexico, effective Monday. Mexico is trying to avert Washington's wrath by deploying Mexican military troops to the Guatemalan border to prevent illegal immigrants from crossing.

Traders looking for Fed rate cuts will be looking for weaker than expected US inflation and Retail Sales data, due Wednesday, and Friday, respectively.