November 6, 2017

Daily Observations:

Asian stocks slipped to start the week after China’s PBOC warned again about excessive leverage. The yen sank to its weakest since March after dovish comments from the BOJ. The US dollar lingered near 3-month highs after Friday’s strong job report numbers bolstered the case for a third Fed rate hike later this year.  

US Wage Growth Stalls:

Last Friday’s nonfarm report showed 261,000 jobs added in October, less than the 313,000 estimated; it was, though, the most number of workers added in a year, rebounding from September’s slowdown as people resumed work after hurricanes Harvey and Irma. The unemployment rate fell to 4.1%, its lowest since 2000.

Average hourly earnings stalled month-on-month, faring worse than the 0.2% rise predicted and slowing from the 0.5% gain in September.

With payroll gains averaging about 162,000 over the past 3 months, the jobs report broadly provided more evidence the economy is approaching maximum employment, probably keeping Federal Reserve policy makers on track to raise interest rates in December for the third time this year.

Federal Reserve Shuffle:

News on central bankers will be closely watched. Federal Reserve Bank of New York President William Dudley is close to announcing his retirement, according to CNBC. His early departure would mean the top three positions at the Fed changing over within a relatively short period. Trump announced last week that Fed Governor Jerome Powell will be nominated to replace Janet Yellen when her term expires in February. Vice Chairman Stanley Fischer retired in mid-October.

Canada’s Solid Jobs Data:

October was another stellar month of gains for Canada’s labor market, with signs of tightening that included stronger wage increases and the biggest-ever 2-month surge in full-time employment. Jobs increased by 35,300 in October from the previous month, more than double the 15,000 median forecast in a Bloomberg survey of economists. The country has now produced job gains for 11 consecutive months, the longest streak in more than a decade.

Saudi Shakeup:

At least 17 high-profile Saudi Arabians, including senior princes, current and former government ministers and businessmen, were arrested by security forces this weekend on the orders of King Salman. The purge is being billed as a crackdown on corruption, but also concentrates power around King Salman’s son, Crown Prince Mohammed bin Salman, and may promote a smoother succession.

Among those detained includes the billionaire Prince Alwaleed bin Talal, whose publicly-traded investment vehicle, which owns sizeable stakes in Citigroup, Twitter, Apple, and Lyft, to name a few, plunged on Sunday. A director of Saudi Aramco has also been implicated in the probe.

More China Warnings:

PBOC Governor Zhou Xiaochuan warned “hidden, complex, sudden, contagious and hazardous” risks are accumulating in China’s financial system, in remarks published on the central bank’s website on Saturday. Zhou’s article also referenced the need for tougher regulation and increasing the financial openness of the world’s second-largest economy.

FX Updates:

USD/SGD:

Spot: 1.3644

USDSGD continues to be supported around the 1.3600 handle. The bias remains to the upside, after the pair broke above its year-to-date downward trend channel in end-October. The key resistance remains at 1.3690. A strong break above it could lead to a push for 1.3900.

AUD/USD:

Spot: 0.7658

AUDUSD’s fall below its old support/resistance level of 0.7750 2 weeks ago has led to renewed technical bearishness for the pair. 0.7600 will be key – a move below it signals more pain for Aussie bulls. The RBA is slated to leave rates on hold when it meets on Tuesday, although investors will be paying more attention to its post-meeting statements, in a bid to gauge the central bank’s future rates trajectory path.

USD/CAD:

Spot: 1.2769

USDCAD fell sharply on Friday following a stronger-than-expected jobs report, and has refuelled expectations of another rate hike from the Bank of Canada later this year.

The currency pair failed to close above the 1.2900 handle last week, and Friday’s stellar jobs report could signal more downside for the pair. 1.2600 is a realistic target over the near term.  

USD/CNH:

Spot: 6.6344

USDCNH pared a weekly decline Friday following the greenback’s rise on Friday. The currency is expected to remain in its range between 6.6500 and 6.7000 over the near term.

USD/JPY:

Spot: 114.26

USDJPY rose to highest since March after BOJ Governor Kuroda said it’s crucial for inflation to exceed the 2% target. The all-important resistance of 114.50 remains to be broken, although there is a strong chance of that happening this week. A break above it could result in the currency pair embarking on a longer-term move upwards, with the double-top at 118.60 a realistic possibility within the next year.

GBP/USD:

Spot: 1.3075

The pound is likely to be driven this week by the state of Brexit negotiations and UK politics, after losing support last week from bets on central bank policy tightening. The pair has fallen for 3 weeks on concerns about Brexit and as the BOE failed to signal the start of a tightening cycle after raising rates last Thursday.

The 1.3000 handle remains the key level to watch; below that, the next support lies at the 200-day moving average of 1.2850.