EUR/USD rally extends + NFP Preview - DAILY MARKET UPDATE

•    Non-farm payrolls Preview (8,000k Exp)
•    ECB adds €600bn to PEPP bond-buying
•    Euro jumps after Germany approves stimulus
•    Nasdaq rolls over from record high
 

MARKETS

The euro is taking the limelight in FX markets with its push into multi-month highs. EUR/USD touched 1.135 after a double dose of stimulus from the European Central Bank and the German government.

The bullish mood across stock markets dampened on Thursday with investors pausing for breath after a huge rally to start the month. The Nasdaq 100 touched an intraday record high before turning lower after disappointing jobless claims data. Shares in Asia look set for a softer start on Friday.

Gold prices gained 1% on Thursday as wider markets turned more ‘risk-off’ and the dollar fell. Oil prices were little changed with no date set for the OPEC+ meeting.

WISDOM

“It’s ok to be wrong; it’s unforgivable to stay wrong.” 
- Martin Zweig (trader, invented phrase “don’t fight the Fed”)

NFP Preview

Economists are forecasting 8 million job losses in May after 20.5 million Americans lost their jobs in April. It’s an improvement from last month but so many people out of work in such a short space of time is a massive shock to the US economy. Rich said in the ‘Week Ahead’ video that he thinks an unemployment rate of 20% could be the marker for a good or bad report. 

The dollar has been on the back foot this week, though not necessarily in anticipation of a poor US jobs report tomorrow. Since the economic outlook has improved, there has been much less demand for cash in dollars than there at the peak of the panic in March. 

If the jobs data misses expectations, the dollar could actually benefit as a haven. However, if the data is perceived as weak enough to justify another loosening of policy by the Fed next week- that would naturally be a downward force on the dollar. 
 

ECB & PEPP

The ECB are playing some catch-up with the Fed- after a rather lacklustre initial stimulus effort. At its meeting on Thursday the ECB expanded the size of its emergency bond-buying program by €600 billion to total €1.35 trillion, while also expanding its duration to at least the middle of next year. 

Remember we said in our note yesterday that the program could expand by €500 billion so it has exceed our expectations – hence the gains in the euro as well as European shares. 

The justification for the decision was that ECB now expects the path of inflation to be lower than at its previous meeting. Fuel for upside in the euro was twofold with German lawmakers agreeing a stimulus package worth €130 billion last night.
 

NASDAQ Record High

There is something not right when stock prices hit all time highs while the economy loses nearly 30 million jobs in two months. We’re watching for a possible sentiment signal from the Nasdaq that the June bull market is getting over-extended.