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AUD wilts on jobs data, US retail sales up as Yellen postponed

Posted: 13 February 2014 | John J Hardy, Saxo Bank | No comments yet

The recent AUD squeeze was reversed violently by another poor Australian employment report after December’s disastrous numbers.

The recent AUD squeeze was reversed violently by another poor Australian employment report after December’s disastrous numbers.

• Australian unemployment at 6% the worst in over a decade
• EURAUD survived test of the critical 1.5000 area overnight
• Market positioned for hawkish Riksbank ahead of governor’s press conference

By John J Hardy

The recent AUD squeeze was reversed violently by another poor Australian employment report after December’s disastrous numbers. The headline unemployment rate also jumped to a new high for the cycle and therefore vaulted over the worst level during the global financial crisis. It’s the worst reading in over 10 years. Meanwhile, the Australian housing market is in a slight echo bubble from the stimulus provided by the Reserve Bank of Australia (RBA) to address the real economy, and we can imagine the struggles that await the Australia economy with its critical mining sector still in disarray as China retools once the housing bubble turns to bust.


capitol snow

Janet Yellen’s second appearance on Capitol Hill is postponed by heavy snow.
Photo: Thomas Wachs / iStock


Meanwhile, EURUSD is back to the high of the recent range — likely driven by fresh shorts getting stopped out, but also as EURAUD survived a test of the critical 1.5000 level. EURAUD has been one of the higher beta pairs over the last year and should remain a significant focus for AUD traders. The AUDUSD move, meanwhile, should give the bears some heart, particularly if we remain below 0.9000 from here.

Chart: EURAUD

EURAUD has been one of the higher beta pairs over the last year and survived the test of the critical 1.5000 area overnight.

euraud
Source: Saxo Bank

Elsewhere, the JPY is not cooperating and proved a red flag yesterday, as it was resilient in the face of yet another strong rally in equities. Indeed, overnight risk appetite wilted and the JPY has pushed stronger still, as USDJPY has a look at the local 102.00 level and may be in for a test of the recent lows in the days ahead, particularly if we get weak US data. EURJPY also looks vulnerable for a throwback sell-off.

Note that the air continues to slowly seep out of the rise in UK house prices with the latest RICS House Price Balance number. We would expect this trend to continue as this is a strongly mean reverting data series. Also note that GBPUSD is pulling close to the multi-year highs here above 1.6600. It looks like a broadening top technically — which would mean it may scratch to new highs, but then should look for a fall back into the range (see below). Stay tuned.

Chart: GBPUSD broadening top?

A classic formation — the broadening top — may be the scenario from here for GBPUSD. Keep an eye on how the pair reacts if it is able to scratch to new highs in the days ahead.

gbpusd
Source: Saxo Bank


Looking ahead

The Riksbank rate decision and statement is in focus this morning. The market is positioned for hawkishness if we look at EURSEK, though Swedish 2-year rates are trading close to the lows for the cycle. The general idea is that the Riksbank is looking to keep a tight grip on private debt leveraging up further in the Swedish economy and will want to avoid too many signals on interest rate cuts, though it is now also worried about low inflation — hence the cut late last year and the tough tightrope for the bank to walk. Technically, EURSEK looks like it wants to test lower, but risk is touchy today and we have the 200-day moving average in view here at around 8.75 in EURSEK and in my book, SEK upside potential broadly speaking has to be extremely limited from here. I will be on the lookout for a SEK reversal back to the weak side in both EURSEK and USDSEK soon. Governor Ingves will hold a press conference at 1000 GMT.

Today we have the US retail sales report, which is could very well be affected by the extreme weather conditions in the US — so a grain of salt will be required if it proves weak. More extreme weather disruptions have been hitting the US this month, so we may have to wait for the March data cycle to draw a reasonable bead on the health of the US economy.

Fed chief Janet Yellen will not testify today as scheduled because of extreme weather in the Washington DC area. Probably no matter anyway, as to paraphrase one observer’s comments about Yellen’s testimony before the House on Tuesday: she expended a great deal of effort in saying as little as possible.

Economic Data Highlights

  • New Zealand Jan. BusinessNZ Manufacturing PMI out at 56.2 vs. 56.4 in Dec.
  • Japan Jan. Domestic CGPI out at +0.1 percent MoM and +2.4 percent YoY, both as expected
  • UK Jan. RICS House Price Balance out at 53 percent vs. 58 percent expected and 58 percent in Dec.
  • Australia Jan. Employment Change out at -3.7k vs. +15.0k expected and vs. -23.0K in Dec.
  • Australia Jan. Unemployment Rate jumped to 6.0 percent vs. 5.9 percent expected and 5.8 percent in Dec.

Upcoming Economic Calendar Highlights (all times GMT)

  • Sweden Riksbank Interest Rate Announcement (08:30)
  • Sweden Jan. Unemployment Rate (08:30)
  • Sweden Riksbank Governor Ingves to Speak after Riksbank Rate Decision (10:00)
  • Euro Zone ECB’s Coeure to Speak (10:00)
  • Canada Dec. New Housing Price Index (13:30)
  • US Jan. Advance Retail Sales (13:30)
  • Australia RBA Assistant Governor Debelle to Speak (01:25)
  • US Weekly Initial Jobless Claims (13:30)
  • US Weekly Bloomberg Comfort Survey (14:45)
  • Sweden Riksbank’s Ekholm to Speak (15:00)
  • Eurozone ECB’s Liikanen to Speak (15:00)
  • Norway Norges Bank’s Olsen to give Annual Speech (17:00)
  • Australia RBA’s Kent to Speak (22:05)
  • China Jan. PPI and CPI (01:30)

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