Failure data from ADP, ECB decision & BoA warnings

6 ביוני 2019

Primarily the data on the US labor market from ADP was remembered yesterday. The number of jobs in private companies in the US in May increased by 27K (the forecast was + 180K). The figures are frankly failing and extremely alarming, given that official statistics from the US Department of Labor will be published on Friday.

The dollar was one of the first victims of such data. Such a negative reaction is due to two main factors. Firstly, the US economy clearly signals problems, and secondly, such data is a reason for the Fed to establish itself in the expediency of reducing rates. Naturally, both of these factors are extremely negative for the dollar.

Well, at the end of the day, the dollar managed to recover. One of the reasons was the publication of pretty good data on business activity indices. Secondly, there is, of course, a chance that Friday's labor market data will not disappoint. Nevertheless, we continue to recommend looking for points for dollar sales.

The key event will be the announcement of the ECB meeting decision. Monetary policy parameters are likely to remain unchanged, but forecasts for economic growth will be revised downwards. In addition, weak Eurozone inflation data, published this week, led to the fact that the markets no longer expected to tighten monetary policy in the foreseeable future, and now they are waiting for its further softening. In particular, traders assume a 0.1% reduction in the rate by July of next year.

This is definitely a bearish signal for the euro, so today we will refrain from recommending to buy euros. Well, or at least make it from very attractive points.

Meanwhile, analysts are continuing to analyze the of a trade war possible consequence. The Bank of America experts named a number of possible scenarios for the situation development (between the USA and China). In particular, China’s exit from US public debt, delisting of Chinese ADRs, the exodus of American investors from the Chinese market, which is fraught with stock and bond sales on the markets, Chinese IPOs could lose access to the American financial market, and finally, countries could start a full-fledged currency war. So to the question “Could the situation become worse?” The answer is unequivocal “could.”

Our position for today: we will continue to look for points for selling of the US dollar, sales of oil and the Russian ruble, as well as buying of gold and the Japanese yen. In addition, we will sell the Australian dollar against the US dollar.