FOREX: US Dollar Poised to Extend Gains on Continued Risk Aversion

The US Dollar is poised continue higher against the major currencies, bolstered by safe haven demand as S&P 500 stock index futures point to continued risk aversion.

Overnight Headlines

• Australian Dollar Tumbles on Disappointing April Jobs Data
• Euro, British Pound Consolidate After NY Session Selloff

Critical Levels

CCY	SUPPORT	RESISTANCE
EURUSD	1.4100	1.4351
GBPUSD	1.6270	1.6466

The Euro and the British Pound were little changed in overnight trade. The single currency tracked sideways in a narrow band around 1.42 to the US Dollar while the Sterling oscillated in a choppy band above 1.63 to the greenback. We are looking for attractive EURUSD and GBPUSD selling opportunities in the days ahead and have entered long USDJPY.

Asia Session: What Happened

GMT	CCY	EVENT	ACT	EXP	PREV
22:30	NZD	Business NZ Perf of Manuf Index (APR)	51.5	-	50.2 (R+)
22:45	NZD	Food Prices (MoM) (APR)	0.1%	-	0.3%
23:50	JPY	Japan Money Stock M2 (YoY) (APR)	2.7%	2.7%	2.6% (R-)
23:50	JPY	Japan Money Stock M3 (YoY) (APR)	2.0%	2.0%	2.0%
23:50	JPY	Bank Lending Banks ex-Trust (APR)	-1.0%	-	-1.8%
23:50	JPY	Bank Lending incl Trusts (YoY) (APR)	-0.9%	-	-1.7%
23:50	JPY	Current Account Total (Yen) (MAR)	1679.1B	1750.0B	1641.0B
23:50	JPY	Adjusted Current Account Total (¥) (MAR)	752.7B	1016.2B	1218.8B (R+)
23:50	JPY	Trade Balance - BOP Basis (¥) (MAR)	240.3B	305.0B	723.3B
23:50	JPY	Current Account Balance YOY% (MAR)	-34.3%	-32.0%	3.0%
1:30	AUD	Employment Change (APR)	-22.1K	17.K	43.3K (R+)
1:30	AUD	Unemployment Rate (APR)	4.9%	4.9%	4.9%
1:30	AUD	Full Time Employment Change (APR)	-49.1K	-	38.7K (R+)
1:30	AUD	Part Time Employment Change (APR)	26.9K	-	4.6K (R-)
1:30	AUD	Participation Rate (APR)	65.6%	65.8%	65.8%
2:12	JPY	Tokyo Avg Office Vacancies (%) (APR)	8.92%	-	9.19%
4:30	JPY	Bankruptcies (YoY) (APR)	-6.8%	-	-10.0%

The Australian Dollar broadly underperformed overnight, down as much as a full percentage point on average against its major counterparts, after April'slabor market report showed an unexpecteddrop in employment. Traders interpreted the release as negative for the prospect of future RBA interest rate hikes, with a Credit Suisse gauge tracking tightening expectations over the next 12 months dropping 8 basis points to the lowest in a week.

The economy lost 22.1K jobs, marking the largest drop in nearly two years. Worse still, the drop was driven by a 49.1K drop in full-time employment, the biggest monthly decline since the 52.2K drawdown recorded in February 2009 just in the aftermath of the global credit crunch and subsequent recession of 2008. The unemployment rate held steady at 4.9 percent.

Curiously, the ranks of the unemployment actually shrank in April, down to 583K from 593K in the previous month. The apparent inconsistency appears to be accounted for by a drop in the labor force participation rate, which ticked lower to 65.6 percent to mark the lowest reading in seven months. Workers not actively looking for a job are not counted as being part of the labor force and so are not considered “unemployed”.

Euro Session: What to Expect

GMT	CCY	EVENT	EXP	PREV	IMPACT
-	GBP	NIESR Gross Domestic Product Estimate (APR)	-	0.7%	Low
5:30	EUR	French CPI - EU Harmonised (MoM) (APR)	0.4%	0.9%	Low
5:30	EUR	French CPI - EU Harmonised (YoY) (APR)	2.3%	2.2%	Low
5:30	EUR	French Consumer Price Index (MoM) (APR)	0.4%	0.8%	Low
5:30	EUR	French Consumer Price Index (YoY) (APR)	2.1%	2.0%	Low
5:30	EUR	French CPI Ex Tobacco Index (APR)	122.36	121.90	Low
6:00	JPY	Eco Watchers Survey: Current (APR)	-	27.7	Low
6:00	JPY	Eco Watchers Survey: Outlook (APR)	-	26.6	Low
6:00	JPY	Machine Tool Orders (YoY) (APR P)	-	49.6%	Low
8:00	EUR	ECB Publishes May Monthly Report	-	-	Medium
8:30	GBP	Industrial Production (MoM) (MAR)	0.8%	-1.2%	Medium
8:30	GBP	Industrial Production (YoY) (MAR)	1.1%	2.4%	Medium
8:30	GBP	Manufacturing Production (MoM) (MAR)	0.3%	0.0%	Low
8:30	GBP	Manufacturing Production (YoY) (MAR)	2.8%	4.9%	Low
9:00	EUR	Euro-Zone Industrial Production (YoY) (MAR)	6.3%	7.6%	Low
9:00	EUR	Euro-Zone Industrial Production (MoM) (MAR)	0.3%	0.5%	Low

The economic calendar offers little by way of market-moving event risk despite a long list of scheduled releases, with the UK Industrial Production reading amounting to the only item of particular significance. Output is expected to rise 0.8 percent in March, marking the strongest performance in a year. The outcome may prove supportive for the British Pound, reinforcing the hawkish cues found in yesterday's Bank of England inflation report and helping to stoke interest rate hike expectations.

On the sentiment front, stock index futures tracking the S&P 500– a go-to benchmark for overall risk appetite – are down 0.3 percent in early European trade, hinting the bout of risk aversion that that began with a rout on Wall Street and carried over into Asia is set to continue, boosting the safety-linked US Dollar against its major counterparts.

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