Macroeconomic overview
Nonfarm payrolls increased by 227k jobs in January, the largest gain in four months, the Labor Department said on Friday. The unemployment rate, however, rose one-tenth of a percentage point to 4.8% and wages increased by only three cents, suggesting that there was still some slack in the labor market.
Still, the labor market is tightening and could hopefully soon spur faster wage growth. Federal Reserve officials view the jobs market as being at or near full employment.
The market had forecast payrolls rising 175k last month and the unemployment rate unchanged at 4.7%. January figure was higher than expected, but the economy created 39k fewer jobs in November and December than previously reported.
The labor force participation rate, or the share of working-age Americans who are employed or at least looking for a job, was at 62.9% in January, the highest level since September. The employment-to-population ratio was at 59.9% last month, the highest level since March 2016.
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A broad measure of unemployment that includes people who want to work but have given up searching and those working part-time because they cannot find full-time employment rose two-tenths of a percentage point to 9.4% last month.
Average hourly earnings edged up 0.1% last month, below expectations for a 0.3% rise. December’s wage gain was revised down to 0.2% from the previously reported 0.4% increase.
There was a big decline in earnings in the financial sector last month, which probably offset minimum wage increases that took effect in 19 states in January. The small gain lowered the year-on-year increase in earnings to 2.5% from 2.8% in December.
On Wednesday, the Fed kept its benchmark overnight interest rate unchanged in a range of 0.50% to 0.75%. It said it expected labor market conditions would strengthen “somewhat further.”
Technical analysis
The EUR/USD rise has lost its momentum. The rejection of a downward move on Friday and the fact that the EUR/USD is still above the 7-day exponential moving average suggest that the market is not ready yet for a corrective move, but there is also not enough fuel to break above recent high. As technical analysis suggestions are unclear, the market will focus on other events. Some speeches of Fed policymakers are scheduled for this week (Harker for today, Bullard and Evans for Thursday). Their rhetoric may set the market direction.
Trading strategy
We wrote on Friday that our short-term long position was under threat but after U.S. non-farm payrolls the situation looks more optimistic. We hope that less hawkish comments from U.S. central bankers will support near-term EUR/USD gains. The long-term outlook remains bullish.
AUD/USD: We expect RBA to stay on hold
Macroeconomic overview
Australian retailers boasted their best quarter of sales in two years, a sign that the economy had likely averted its first recession in 25 years, though shoppers turned frugal into the Christmas holiday season.
Data from the Australian Bureau of Statistics out on Monday showed real retail sales for the quarter-ended December matched expectations to rise 0.9%, from a flat July-September. Sales actually fell 0.1% in December, upsetting forecasts of a 0.3% increase and revealing a disappointing lack of momentum heading into 2017. In another worrying trend, homeware sales tumbled 2.3% in December, the first drop since mid-2016 and the biggest in more than four years.
Retail contributes about 17% to Australia’s annual economic output, and is the second-biggest employer after healthcare.
Data on Australia’s GDP for the fourth quarter is due March 1 and economists generally expect the pace of growth to have rebounded after a shock contraction in the July-September period.
Cementing that view, figures out last week showed Australia posted a record trade surplus in December while measures of business confidence and conditions had bounced too.
However, Monday’s data showed price gains remained very muted with the retail deflator rising just 0.3% in the quarter, a worrying sign for underlying inflation which is below the central bank’s target band of 2-3%.
The Reserve Bank of Australia’s decision is scheduled for tonight. We do not expect the central bank to announce any actions at this meeting, but there is a risk that the central bank will use rhetoric that is a tad more harsh in order to limit the pace of appreciation and induce two-way volatility. From a medium-term perspective, we continue to see upside potential in the AUD, although there is a possibility that the pace of gains may decelerate somewhat.
Technical analysis
The Australian dollar slipped on Monday after making a three-month peak last week. Long-term charts are bullish and we expect the rally to resume, but the pace of AUD appreciation may decelerate.
Trading strategy
We stay bullish in the long-term part of our trading strategy portfolio. Short-term strategy is to buy AUD/USD on dips.
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By GrowthAces.com – Daily Forex Trading Strategies
