 Hello, good afternoon and welcome to CMC Markets on Friday the 6th of May and this non-farm payrolls webinar with me Michael Huston and my colleague Colin Zizinski will be covering not only the US jobs numbers but also the Canadian jobs numbers on behalf of our Canadian clients because they are just as important and actually could give a significant indication as to I think not only the direction of obviously the dollar CAD but also potentially could give close and I'm just saying this close as to the direction of crude oil prices which on some measure could well have topped out but at the moment we seem to be chopping about in a bit of a range but first and foremost before Colin and I get started we have to go through the obligatory housekeeping rules risk warnings what have you for the purposes of compliance so if you could be good enough to just absorb them bear with us while we go through them and then we can actually get started on the more important matters of the actual data itself. So non-farm payrolls one of the biggest data releases of the month not only for the US economy but for financial markets in general but certainly I think probably less important now than say for example the jobs report in a month's time which will be just before the next FOMC meeting which is on the 14th and 15th of June now we've had a number of Fed policy makers come out in recent days arguing the case or articulating the case that the potential for another two or three rate rises remains on the table notwithstanding my skepticism about that let's look at the numbers first and foremost let's look at the Bloomberg's work screen WIRP I find this is a very effective way of seeing how the market is positioned or what the current implied probabilities are that the market is assigning to a June rate rise and at the moment they're assigning a 10% probability that they will rate the Fed will raise rates in June they're actually only assigning a less than 50% chance they'll raise rates at all this year and yet we have Fed policy makers like John Williams of the San Francisco Federal Reserve as well as people like Dennis Lockhart articulating the possibility that we could get two to three rate rises this year well someone's got this very very wrong could be the markets or it could just be the Fed basically trying to muddy the waters with respect to their future intentions on a potential rise in interest rates ultimately I'm more inclined to believe the market and ultimately I'm more inclined or I'm less inclined to believe the Fed despite all of the common coming out of out of these Fed officials so yeah this has been interesting because they've you know a few of them have been suggesting that they think the the markets are are being a little too pessimistic on rate height I think they're probably talking more about the bond market when I look at when we look at the the dollar index and thank you for putting that up Michael I think this year what I've been running at is kind of that with a dollar index around a hundred was pricing in about four hikes 92 was price sorry 95 with pricing in about two hikes and 90 would be pricing in zero hikes and not that long ago we got down to 92 and we're kind of settling into this 92 to 94 area which is telling me that at least the currency if we've got the bond market saying none we've got the Fed saying two or three and the currency market is telling us one maybe two probably more like pricing and more like one so I think between all of them we're kind of we're still seeing this easing reducing of Fed expectations I think two to three is looking a little bit as far out there certainly three is getting is looking way out there at this point well I think if you if you're articulating three interest rate rises this year as Goldman was arguing this morning on Bloomberg then really you're going to have to see a rise in June a rise in September and a rise in December so whatever the for whatever the merits for raising rates in June and whatever the merits for raising rates in December in the year of a presidential election they're not going to raise rates in September because it's too close to the presidential election they are not going to want to be accused of being partisan by either the Democrats who perceive that a potential rate rise could be harmful to their reelection you know their reelection prospects or Donald Trump who's already articulated that he wants to replace Janet Yellen if he becomes president so so for me I think two is either even two rate rises is stretching it and there's another factor at play as well Colin and I think Mr Lockhart actually touched upon it he said that the Fed is looking at the UK referendum vote on 23rd of June as a possible decision or possessing a potential factor in the decision making process well they meet nine days before so if they are considering it are they going to start raising rates nine days before a potential Brexit if the polls remain close so that's another you know that's another thing to fact absolutely there's so many factors right now affecting that but that's a big one I mean do they really want to do that at that point in time given the which also of course with the close election in in the in sorry the close vote in the UK if you get a close one in the US well then then December becomes iffy as well if you start getting into legal challenges and things like that because you can be sure the Clintons and Trump are going to battle it right out to the end and probably pass the election date if it's anywhere near close so I mean my base case scenario is that if we don't go in June which is looking increasingly unlikely we probably won't go at all and if it is a close if it's not a close contest then we probably will go in December if the data supports it the Fed says data dependent you know we we talk about the payrolls numbers so so let's have a look at the payrolls numbers and let's have a look at the data this week because I think that's important but I think what's more important is what the price action is telling us on not only the dollar index but also cable and euro dollar and and it is suggesting to me and ladies and gentlemen and if you want to ask questions please do so using the chat facility I think there's a potential for a little bit of a dollar rebound now how that basically pans out it's not it's not going to be immediately apparent but certainly I think a disappointing jobs number will obviously put pressure on the dollar but will it be enough to push the dollar below the lows that we've seen this month I think that's unlikely given what we've seen here on the dollar index but more importantly what we're seeing here on the euro dollar so let's look at the euro dollar what we've got is a potential shooting star on the daily chart for euro dollar which is this candle here with a very long upper shadow we've also got the oscillator starting to turn over and we haven't as yet been able to get much above 114 50 on euro dollar on any subsequent rebound after breaking back below these series of highs through here now those of you who've who've listened to my webinars before will know that I'm very big on trading levels or you know basically looking at levels in particular and we can see that there was a significant amount of resistance through here we've finally broke above it we broke above it very strongly but we've exhausted that and come back very very quickly now that's not to say that we can't then go back higher again but certainly on the basis of this chart and on the basis of the dollar index and there's very strong correlation between euro dollar and the dollar index there does appear to be some evidence that potentially we could see a little bit of dollar strength a little bit of euro weakness over the course of the next few trading sessions it's a similar sort of story on cable as well probably more so if we look at the daily chart here again let's blow it out a little bit we have a very strong key reversal day earlier this week made a brand new high and a new low and we closed quite a bit lower thus far we've struggled to really break below 144 40 but we haven't really got much above 145 40 so at the moment we're getting pulled in a hundred point range the bias here again remains probably more to the downside than the upside but ultimately I think it does point to a little bit of what I would call dollar strength so let's talk Colin about what would cause potentially the dollar to gain today and I think really we've got to focus on this item here average earnings because I think a dollar you know a payroll's number between say for example 160 and 250 or 150 and 250 it's not going to move it it's not really going to move it it may move it you know marginally but in terms of the overall direction of travel with respect to a stronger dollar it's probably not going to move it that much a weak number could see the dollar weaken and we could go to the top of the range around 145 and a half 146 but ultimately I don't think it's going to send it back to the highs that we saw at the beginning of May in cable or the highs that we saw in euro dollar it might it might weaken the dollar initially but I don't think it'll it'll it'll weaken it any more than it's already been weakened in terms of the lows of the dollar index so what so essentially what are we looking at here we're looking for a dollar positive number average earnings 0.3 the annualized number is 2.4 becoming at 2.5 or we come in slightly stronger if the participation rate goes up and maybe the unemployment rate goes down that could actually be mildly dollar positive okay yeah and in general going forward earnings is also important because we look at inflation because the headline inflation numbers have been have still been relatively weak but core inflation numbers have kind of been creeping a little bit higher over the last few months so people will look for this to inflation numbers and as we move through the month once we get past the payrolls number the ones we really wanted to keeping an eye on for for dollar action would be the inflation number so just to think about that as we as we move through this this report and beyond perhaps just five minutes to go Michael we'd like to just have a quick chat on our forecast this is a a rare month that has Michael actually more looking for a higher payroll figure than I am so maybe you'd like to start or okay I'll go I'm at 175 I saw the ADP numbers came in a bit soft some of the other numbers have come in a little bit soft over the last month or so so it seemed to me as though heading into the spring things have still been a little bit sluggish here so I'm not looking for as big a miss as ADP was about half that kind of a miss the streets at about 200 so go ahead Michael yeah I'm looking for slightly more than that two two two hundred and twenty thousand jobs which is a mildly dollar positive number so anything above two ten to twenty I think we'll push the dollar higher simply because that's the way the market's positioned I think the market is slightly positioned short with dollars and I think a slightly positive number should actually push the dollar higher push cable lower push dolly and higher push euro dollar lower and the reason I've gone slightly high on non-farm payrolls is I've looked back over the course of the last few years and whenever ADP's come in on the low side of expectations non-farm payrolls has generally beaten it by about 40 or 50 000 to the upside so I can display that on this graph here so if we say for example look back at April last year ADP came in at 191 non-farms came in at 251 if we go back to 2013 or 2014 rather ADP came in at 241 non-farm payrolls came in at 330 so that sort gives you an indication and in 2011 it was it was it was a it was it was it was a similar sort of story so based on those probabilities I think the likelihood is that given the seasonality and given the fact that there was there's been five weeks of data jobs data since the last payrolls report that actually non-farms could actually come in slightly higher than expected now that's not to say that I'm going to be right but if they do come in lower then that's actually doubly disappointing simply because you've got more weeks to add more jobs and if they come in low then actually the US economy is probably adding less jobs on a weekly basis than they have been in the past the average over the course of the last six months is around 245 250 I just want to mention also on top of the five weeks Easter came early this year Easter was in March so April should have been a clear month for for job creation with a couple minutes left I just wanted to highlight Canada employment as well last month was pretty good with 40 000 and and the full-time number was particularly strong this month I think well usually when we get those kind of spikes in candid jobs we usually get a bit of a retrenchment the following month so I think that the job creation will come back off a little bit I think the streets being a little bit pessimistic at zero I've been I've called for for 10k on the on the Canada jobs which is kind of an average average month what we want to see in dollar CAD is a very strong reversal on the dailies and potentially we could be seeing a bullish engulfing week on the weekly so that suggests to me dollar CAD has bottomed which means that we could see the dollar rise against the Canadian dollar which then potentially due to the strong correlation between that and crude oil could actually see crude crude oil prices come lower so I think that's an important that's an important correlation to make because I certainly think in terms of Brent prices and let's have a quick look at that we've got 58 seconds quickly look at that look at the weekly chart on Brent we are currently negative bearish engulfing we haven't closed the week here yet but certainly there's potential that we've seen the top on Brent and we could be about to roll over and that could be as a result of a strengthening dollar so again that reinforces my narrative of a slightly stronger dollar so if you're going to play these numbers then really I think it's a case of buying dollar dips as opposed to looking to sell the rallies I think we could see a little bit of short-term dollar strength in the short to medium term so unless you've got anything else to add Colin let's get ready to I think we're ready I think we're ready okay good so we're looking for 202 about 200,000 on non farms Canada jobs who's right there average earnings 0.3 and unemployment rate five percent so here we go numbers are due five percent unchanged 160 non farms that's a very weak number so that's very equal that's very weak 0.3 so that's but that is very very negative so let's bring up dolly let's bring up dolly yen and let's see whether or not we're going to get a dollar sell-off on the back of that there's no doubt about it the big question is will we see a sustained move below the previous lows and I'm doubtful that we will so let's quickly I'm just waiting for the chart so Canada plan was negative 2,000 by the way Canada is doing what? negative two negative two yep so that's slightly below 7.1 yeah 7.1 and full-time it was all full-time drop of 2,000 in full-time jobs and per time was flat for Canada okay and let's look at let's look at the revision for March for non farms and March was revised slightly lower from 2008 so these these these aren't good jobs numbers but I certainly think they do take I don't think they've got to take June off the table unless we get a really really strong number next month I mean what's your consensus on that I think we pretty much I think we can pretty much conclude that they're not going to raise in June unless we get I would suggest a 280 or a 290 in May yeah I think that's fairly reasonable and the only other way they would do it in June is if they just get to the point where they say well we have to do it in the heck with the data which it's kind of what happened back in December but we'll see on on that one that was a little bit more going out on a limb but at this point the data certainly does not justify it when you're because one of the two things that had been had been pushing towards a June hike had been that the employment's been running strong and it's not anymore and an inflection was picking up which so this actually does present the Fed with a problem because we have seen evidence of rising prices we've seen the evidence of rising prices in the quarterly wage costs for Q1 they rose 4.1 percent we saw prices paid in ISM manufacturing jump to 59 highest level since September 2014 and we saw a very strong prices pay component in the non-manufacturing numbers as well so you know I made this point earlier this week in my in my daily update if prices start to rise at a time when jobs growth is starting to slow what are the Fed going to do are they going to look through the slowdown in the jobs data and raise rates into the into the teeth of a slowing economy I don't think so the last time we had this happen and people were asking me about in interviews this week we were back in the 70s when we had stagflation and that was exactly what it was was you had the weak economy high inflation and and from what I recall from the work I've done the Fed kind of was very choppy they would raise rates for a couple of times and then they cut them and then they break them and then they cut they didn't go on these long campaigns that we've seen in the last 30 years it was a very very choppy Fed at the time now obviously things have changed and the Fed the Fed has changed how it's operated under the last few chairs so it but it would be really I think you'd see more uncertainty over what the Fed may end up doing and then and certainly putting it out in the air and actually that's one of the things I've been thinking also of late is that I don't think the Fed is actually doing the economy any favors with all of their their contradictory statements and arguing because then you don't really get a sense of what direction they actually want to go in and even if they even know and I think that's another thing is does the Fed even know what they want to do I don't think the Fed do know what they want to do I think the Fed is split and these numbers aren't going to make that job any easier let's look at the S&P 500 because at the end of April people were talking about a golden cross on the S&P 500 and I must admit I did pour an awful lot of cold water on that because ultimately a golden cross only works as a supplementary indicator in the course of what's happened with respect to the previous price action getting a bit of feedback on your line Colin and we did get a golden cross in December and that failed and again here we are now approaching a very very key support level on the S&P 500 it's around about 2035 2032 we can draw it through these this series of loads through here what we're seeing essentially is I think equity markets in general starting to run out of an awful lot of steam and this is despite the fact that we've got the ECB saying that they're going to remain accommodative we've got the Bank of Japan saying that they're going to remain accommodative and could potentially ease more we've had the People's Bank of China in the last half hour saying that they're prepared to do more on the back of a weakening Chinese economy but these statements and these actions are no longer having the effect that they were having two or three years ago ultimately we're pushing against the limits of monetary policy now does that mean I think that equity markers are going to roll over and fall quite sharply at the moment while we're above this key support on the S&P 500 I don't think so but certainly I think if we break below this series of loads through here and this 50 day moving average starts to roll over back towards the 200 day moving average then I think it's quite likely that we're going to continue to trade in the ranges that we've been in for the past 12 months and that's essentially the bottom of the range is around about 1800 the top of the range is around 2100 and I don't think we're going to go anywhere more importantly I think we've seen a little bit of a weakness not only in the S&P even though it has managed to get back most of the losses that we saw earlier this year that hasn't been the case for the FTSE 100 or the DAX oh can I just mention one thing before we move on to those yeah also don't forget we're moving into May and June which is the other seasonally week time of the year for stocks often we do get a retrenchment and then kind of a bounce in July and then the and then the big high volatile risky period for markets is in mid-august to mid-october but this is the other one that kind of the minor seasonal week period for for stocks is kind of now through the end of June so we are seeing a seasonal one looks like a seasonal rollover and underway as well and that's spawned out by this chart here now early in the middle of April we saw not only the German DAX break above the 200 day moving average but we also saw the FTSE 100 we saw a number of bullish signals on a whole host of the daily charts the fact they've not been able to sustain those breakouts is a worry for me and the fact that now we're back below the 200 day moving average on the DAX and now we've broken below the 50 day moving average and broken below the trend line from the February lows does suggest that that weakness that we're seeing in equity markets is pretty much across the board certainly we're seeing it with the DAX here what won't help the DAX is a stronger euro so anytime the euro goes back towards 115, 116 or 117 the likelihood is we're probably going to see the DAX come under further pressure but also to confirm that if we look at the euro stocks 50 we get a similar sort of story again we've broken below the trend line support from the lows in February and what was more interesting actually with the euro stock 50 is even though the DAX broke its 200 day moving average the euro stocks 50 didn't and this is something that i've looked at in the past in terms of correlation i correlate these two indices because i tend to find that if they move together and the indices or the indexes confirm the breakouts the breakouts tend to be more powerful in this case the euro stocks 50 didn't confirm the DAX breakout which made me a little bit suspicious of it so moving on to the uk 100 similar sort of story here but we are pushing against support in the similar way we're pushing against support on the s and p 500 this 60 55 60 60 level on the footsie 100 is a very key support area has supported it throughout pretty much all of march and april so again at a very very decent support level on the footsie 100 as well let's have a quick look at gold because i think those numbers will definitely help gold we're back pushing against that 1300 an ounce level will that be enough to push them through it push push gold through that level i'm not convinced in the term i certainly think in the longer term there's potential for gold to go higher we can see where the big big support on gold prices is it's around about 12 12 0 5 but i think also if you look at previous support and resistance levels you can also see through here there's a decent area of support as well and certainly i think if you look at it on the basis of this this chart here sorry about i just misdrew that line if we look at it on the basis of this nice little triangle breakout on gold then potentially we have got room to go a little bit higher over the course of the next couple of weeks certainly on the basis of that triangle breakout that we've got there we take that move there the distance between these two points and project it upwards so that probably takes us to round about 13 20 or 13 30 maybe not today but certainly over the course of the next two weeks um let's yeah gold is definitely looking like it can move up particularly as the as the US dollar starts to weaken we do so much of the gold move this year has been driven by the by the weakening US dollar one other thing i've been mentioning on gold to keep an eye out as the year progresses is that the gold often acts as an inflation head as well so if we if we do see inflation start pressures to build again that also can can help to support a rebound in gold just as the dictionary pressures in 2015 drove gold down so it'll be very interesting if when we get some new sort of spending data out or we get new inflation data out we look at prices paid data see whether or not the inflation pressures that we're seeing building up there start to spill out into the wider economy certainly if you look at the UK economy inflation was minus 0.1 in November in March it was plus 0.5 so we have seen a pickup in inflationary pressures in the UK economy we're starting to see it in the US economy is that a result of a weaker currency or is it is a result of rising input costs it could be one and the same it's very difficult to draw a correlation between the two but ultimately what we're seeing here now is the dollar has come a long way but we are now approaching a very very key level on the US dollar for the next move higher or lower and certainly with respect to Brent crude prices this weak report actually hasn't done anything to weaken the dollar sorry to basically change the direction of travel with respect to oil prices should we have a quick look at Canada Colin after that report please okay let me see if I can find it there it is so despite the fact that we've it's been a horrible US report the CAD has broken the dollar has broken higher against the Canadian dollar so yeah which is showing the Canadian because the Canadian report was soft as well so we're I think we're seeing that that play of oil coming off and one of one yeah one of sets the other yeah and that's done that's a great thing about foreign exchange isn't it you get too lousy reports but which one's the lousy exactly but it's interesting the one that really intrigued me this week was the trade reports where you had the US a lot better Canada a lot worse and that was what triggered that huge bullish engulfing day and it's interesting because usually it's usually employment that has those kind of swings rather than trade but that's where it was that big day was it was a divergence in trade so and now we're seeing follow-through on the on the job numbers and this is why it's so important that when you look at the data you look at the price action first because the price action is probably more important than the data you've got a very soft US jobs report but the dollar hasn't really sunk significantly yeah we had an initial knee jerk sell-off but it's starting to come back you know and I think I think that is that that is so important in terms of the overall dynamics when you're when you're trying to trade a market how often have we said that it's a lousy number the dollar's gone up or that's a really good number and the dollar's gone down it makes no intrinsic sense in terms of how you perceive the data but it's not whether or not the data is bad or whether or not the data is good it's about what's already priced in and maybe expectations were fairly low that this would probably be a poor report and I think to a certain extent I think people were expecting a slightly disappointing report this was slightly more disappointing than I think people had expected it to be but nonetheless I think if we look at currency positioning and I think that's important as well if we look at the client sentiment on say for example dolly yen um positioning wise the market's predominantly long which is probably why we saw the the the sell-off that we saw initially but the big question is can this sell-off be sustained in the face of the fact that we are probably at the lows of the week are you going to want to go home short dolly yen at a time when the Bank of Japan is talking about potential intervention that's something else that you've got a price in to your overall equation when you're looking at dolly yen bearing in mind that Japan has been off for an awful lot of this week in golden week and therefore the Bank of Japan might want to lay down a marker when it returns next week so you know we're seeing dolly yen under pressure at the moment the big question is how many people in the market are going to want to go home short and ultimately if it was me I'd want to square up into the weekend so let's go back and look at euro dollar and see how that's getting on and what happened here to have a quick look at the one hour chart so there we have it sharp move higher to 140 and 75, 140 and 80 lousy jobs report has come all the way back completely counterintuitive so the dollar's weakened and it's come straight back which suggests to me that ultimately despite the fact this allows you to report the line the line of least resistance of the moment for euro dollar is probably for a test of the downside yeah this is also telling us that we're definitely into a trading correction for the for the the currencies with the U.S. dollar bouncing back up after a big sell-off these things coming back off after a big rally and you and I did mention just before the numbers came out that a 150 to 250 report would would probably not have a massive impact on the Fed speculation that we'd probably go back to more of the the technical trading which is what we've seen so so far and that's exactly right and you can see a lot of the market is short euro dollar so we got we got a nice little squeeze of those shorts but now we're coming back and ultimately it's probably going to be the same thing going forward so this is why technical analysis and charts is so important in terms of where the support and resistance levels are there's also the fact with respect to euro sterling that can actually give you some clues as to what the the currencies may do because let's look at this euro sterling chart does this look like a potential head and shoulders reversal at the moment really I agree we've got a decent area of resistance between 79 30 and 79 40 why is that level important well tell me why that level is important let's look at the 200 week moving average we traded above it we traded through it we haven't been able to hold above it but look what we've got here we've had a bearish engulfing week in mid april we've traded lower we've come all the way back down we're now pushing back against the 200 week moving average which would appear to suggest there's a significant pressure there if we now take that down into the daily charts we can see where the resistance level is we can see where it was resistance there it was resistance there it would then actually just support on these four days here and we it is now acting as resistance so this is where resistance and support reverse their roles quite nicely and enable you as the trader to set your stop loss levels accordingly so euro sterling suggests to me that there's further downside while we stay below 79 50 and if we do break below this level here then we're looking at further losses which suggests to me that we are going to be vulnerable to euro weakness and sterling strength the biggest problem we've got is how does that play out in euro dollar and sterling dollar and this is where technical analysis again comes in you've got a bearish engulfing pattern on cable here which suggests that cable is probably vulnerable to a downside correction but probably less so than euro dollar euro dollars got to go down faster than sterling dollar for euro sterling to go down if that makes sense if it doesn't drop me a drop me a line on twitter mcmc and i'll try to answer it in a slightly more um in a simplistic way but in essence all of these charts are pointing to a little bit of sterling weakness against the dollar but if euro weakness against sterling which in that case wouldn't equate to substantially a little bit of euro weakness against the dollar as well there was something else that i meant to mention and and and it's a skate to me but i certainly don't think we're going to see significant currency moves today um as we head into the weekend but ultimately i think going back to the dollars the dollar the dollar story i don't think we're going to see um new lows in the dollar today does anyone have any questions on anything that we haven't covered quite yet or haven't covered Aussie dollar actually that's probably worth looking at that's probably the other one you were thinking of that was the other one i was thinking of because let's look at this break this look at this breakout on Aussie dollar that is rolling as you say and i think we're going to come back and test this 200 day moving average which is around about 72 and a half so it's about 100 points lower than where we are already um significant breakout topped out let's look at the weekly chart again that's pretty that's a pretty powerful indicator the oscillator starting to turn over downward momentum is probably starting to build up there and again what we've got here is a little bit of divergence on monetary policy more convergence i should say because the Australian Australian rates has just been cut by 25 basis points people are speculating that the rba could cut again in june if that is the case the interest rate differentials between the rba and the fed will continue to narrow and that will favor the us dollar over the Aussie dollar okay it's tend to um does anyone have any questions that they would like to direct towards Colin or myself if not i think we'd both like to thank you all for joining us today we'll pop this up on youtube later if you any of you want to go back and revisit any of the points that Colin and i have discussed otherwise we'd like to thank you all for um your attendance today and hopefully hopefully you've got everything that you wanted from today's webinar thanks for that i thank you all for joining us today and um have a great day trading cheers Colin cheers Michael