Softer US payroll data was certainly against market expectations. But batch of US data released earlier from USA was clearly hinting weak jobs report, though it is believed that severe winter could be the spoiler, also hitting construction business badly.
It is expected that change in weather condition in coming months will help US economy to pick its lost pace in the 2ndquarter and so will jobs numbers. Despite poor jobs number, unemployment rate remained steady at 5.5 pct.
March Payroll fell to 126.000 against market expectation of 240K which is surely sizable suggesting low hiring trend. Previously payroll was comfortable averaging around 300K. Now the real challenge for FED is that for the remaining 9-months if the US economy can grow at an average between 225-250K.
However, I would stick to my “OUTLOOK 2015” and see rate hike around last quarter of the calendar year, as current soft patch of data could be temporary. Shift in Central Banks policies are based on broader economic outlook and not on weak, weekly or monthly release of data’s. FOMC meeting minutes on Wednesday April 08 will provide better clues about the interest rate direction.
Meanwhile, some of the recently released Euro-zone economic data has shown signs of minor recovery. It is too early to start talking of European economic recovery. Quantitative Easing is still in place and this is just the beginning. Negative rates are certainly having impact on the European currency. IMF data of past quarter is indicative of fact that Euro has lost the confidence of enjoying the status of reserve currency.
Furthermore, Greece is a pain in the neck of European policy makers. On April 9 Greece has debt obligation of Euro 458 million and has to pay salaries and arrange social security funding on April 14. Greece’s financial condition is miserable, so risk is that it may either default or ask for more time. Most likely, Greece could be blessed with further grace period, as Europe may not be willing to get exposed fearing contagion effect.
Therefore, Euro’s up move is expected be short-lived, as European unrest will continue to be the dominating factor. Whereas, US Dollar bounce back looks imminent unless there is more evidence of US economy declining.
In UK too, there is an increased political risk due to coming elections. It is not clear that which party could take the lead, which will keep market guessing and investors will remain nervous because of ongoing uncertainty. The biggest concern is David Cameron’s pledge to hold referendum on the UK’s EU membership, if the conservative wins a majority at the British election in May. This is having negative impact on Pound Sterling, which is likely to remain under pressure. Hence, on any up-move sellers will dominate the market, as they will try to pick the top.
Meanwhile, gold has found support due to multiple of temporary factors. Middle-Eastern unrest and soft US data may not be enough to shift the sentiment. Weaker economic condition in China, absence of Central Bank buying and FED’s decision to withdraw stimulus from US economy is a huge setback for the gold Bulls.
For past 5-6 years, investors/hedge funds enjoyed excess liquidity provided through FED’s extraordinary monetary support, since financial crisis erupted in 2008. But BOJ and ECB’s QE policy does not serve the purpose, as liquidity is not available for same purpose.
EURO @ 1.0965 = Euro needs to penetrate beyond 1.1040 levels for a move towards 1.1090-00, but has strong resistance and may not happen with ease, as the currency will find seller. 1.0780-00 is the strong support zone. Break here will encourage for 1.0640.
GBP @ 1.4902 = Cable does not have enough legs to move beyond 1.4980-20 levels and needs to push beyond 1.5050 for more gains, which is not a preferred move. It is likely to find sellers and test and break of 1.4780-00 will open gates for 1.4690.
GOLD @ $ 1202 = Initially $ 1190 should hold for a a move towards $ 1225-30 zones and is likely to find resistance or rally could extend towards $ 1240-50 areas. But selling interest could be seen on rise. I am expecting choppy and volatile session during the week. However, break of support level will push gold towards $ 1168.