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Report on the US labor market came out weaker than expected, which led to sales of the dollar at the close of trading on Friday. 75 thousand new jobs were created, while growth was forecast at 185 thousand, while data for March and April were revised downward by the same 75 thousand, which means zero growth in May.
The second unpleasant surprise is a decrease in the average wage growth in May + 0.2% m / m and + 3.1% y / y against + 0.3% m / m and + 3.2% y / g a month earlier.
The decline in the growth of new jobs is not yet a sign of the approaching recession, since averaged data for 3, 6 and 12 months does not go beyond fluctuations, but if we consider these data together with weak PMI, especially in the manufacturing sector, we can assume that pressure on the Fed continues to increase.
According to the CME futures market, the probability that by the end of the year there will be only one reduction in the rate is less than 10%, that is, the markets are convinced that there will be at least two reductions. These expectations completely overlap the pigeon sentiment, which tried to broadcast to the ECB markets at a meeting on Thursday and push the dollar down.
On Tuesday, negative sentiment can be supported by a decrease in the NFIB small business index of optimism, as well as an expected slowdown in producer prices, and the main guideline that will allow markets to predict a general mood for the FOMC on June 19 meeting results for May Inflation. As long as the forecast is neutral, any deviation on this or that direction will be able to change the direction of the short-term dollar trend.
EURUSD
The results of the ECB meeting last week on all criteria should be assessed by the market as pigeons, however, the euro continued to grow, as completely different factors dominate - expectations for the Fed rate cut and the completion of the mandate of Mario Draghi as ECB head.
The ECB has somewhat shifted the horizon of its promises on interest rates. Now, we must assume that the rates will not remain at current levels until the end of 2019, but at least until mid-2020. The Fed can reduce the rate twice or even three times during this time, which ultimately determines market expectations. Accordingly, the weak macroeconomic data of the eurozone fades into the background and is unlikely to change anything in the forecasts for the euro.
On Monday, the euro have muffled volatility due to the holiday in Germany and the lack of significant macroeconomic publications. The mood is positive, target 1.1375 / 85, the next target is 1.1448, but its achievement in the next two days is unlikely.
GBPUSD
On Thursday, June 13, the election campaign starts, in which the new leader of the Conservative Party of Great Britain will be determined. At the moment there are 11 candidates, Boris Johnson is considered the favorite, Jeremy Hunt and Michael Gove are competing for second place. Each of the candidates has his own opinion on the development of the situation with Brexit. The voting results may determine the fate of the pound for the next few months.
As for the macroeconomic news, the week for the pound will be very tense. On Monday, a report will be released on industrial production and the trade balance in April, plus NIESR will give an estimate of GDP growth rates over the past 3 months. On Tuesday, a report on the labor market is projected to increase the average wage from 3.2% to 3.4%. The output of data in line with expectations may provide strong support for the pound.
The pound looks confident on Monday, playing back both weak dollar data and a change in its own political background. The nearest resistance is 1.2762 / 72, target 1.2863, which can be achieved on the next day or two.
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