Yen and Dollar May Rise as Stocks Fall on US Jobs Data

TALKING POINTS – YEN, DOLLAR, US JOBS DATA, S&P 500, UK PMI, EUROZONE CPI

• Yen and Dollar may rise as stocks fall on soft US jobs data

• Risk aversion may push S&P 500 through key support level

• UK PMI, Eurozone CPI data may not prove market-moving

Aprils US jobs report is likely to take top billing through the end of the trading week. Baseline forecasts call for broadly on-trend results. A 190k rise in payrolls is expected to be flanked by a steady unemployment rate at 3.8 percent, a reading just a hair above the 50-year low of 3.7 percent clocked in November. Wage inflation may tick up a bit within the recent range of values, rising 3.3 percent on-year.

US economic news-flow has deteriorated relative to analysts projections over recent months, implying their models are too rosy and setting the stage for disappointment. That seems to be reinforced by leading activity survey data. The markets might have hoped that a soft result would spur on stimulus, but the Fed seems to have ruled out as much, at least in the near term. That sets the stage for a risk-off response.

The anti-risk Japanese Yen may outperform in this scenario. The similarly-minded US Dollar may likewise rise, albeit after some characteristic seesaw volatility in the releases immediate aftermath. Indeed, if the soft result does not meaningfully imply a dovish shift in the policy outlook, there seems to be relatively little to standing in the way of the Greenback capitalizing on heightened liquidity demand amid de-risking.

UK PMI and Eurozone CPI data headline the European economic calendar. Improvements are expected on both fronts. However, neither result is likely to be particularly market-moving absent wild deviations from baseline forecasts considering that ECB and BOE monetary policy is firmly anchored. That cuts off the speculative drive that might have produced volatility under alternative circumstances.

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CHART OF THE DAY – S&P 500 AT MAKE-OR-BREAK SUPPORT BEFORE US JOBS DATA

The benchmark S&P 500 stock index recoiled from critical resistance below the 3000 figure, as expected. The barrier is marked by the 2018 swing top, the upper bound of a bearish Rising Wedge chart pattern, and the underside of support-turned-resistance established from February 2016.

Prices are now idling at the Wedge floor, with an indecision candle implying the barrier has been recognized by markets. This means that a break below it – confirmed on a daily closing basis – just might have scope for lasting follow-through.

A soft US jobs report may well push the index over this ledge, establishing a double top and setting the stage for broader risk aversion across financial markets. That probably bodes well for USD and JPY while the sentiment-geared commodity bloc currencies like AUD and NZD suffer outsized losses.