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Dollar, stocks and gold all strengthened overnight after the European Central Bank opened the
door for negative deposit rates. US equities were additional lifted by gains in tech stocks
and the S&P 500 closed at another record high of 1597.59. Gold is back above the 1475 level
after breaching 1440 earlier in the week. The Dollar index rebounded to as high as 82.35
after dipping to 81.33 earlier this week. The unexpected fall in initial jobless claims
to a five year low also helped the greenback. But the dollar will be facing an important
test from the non-farm payroll today. Markets are expecting a 155,000 growth in
the non-farm payroll in US in April while the unemployment rate is expected to be unchanged
at 7.6%. It should be noted that the ADP report released earlier this week was a disappointment,
which showed only an 119,000 job growth in the private sector compared to expectations
of 153,000. The employment component of ISM manufacturing also dropped sharply from 54.2
to 50.2 in April. The two figures could be viewed as an alert of downside disappointment
in the Non Farm Payroll. Though, the surprised rebound in consumer confidence from 61.9 to
68.1 in April might indicate some optimism among employees.
Technically the dollar is rather mixed for the moment. The pull back in EUR/USD, while
deep and sharp, didn't warrant a near term reversal so far. GBP/USD is also holding firmly
in spite of the volatility elsewhere. AUD/USD dipped through the 1.0220 near term support
briefly but there was no follow through selling. USD/CAD also stays mildly bearish but again,
there wasn't any decisive selling. On the other hand, it should be noted that yen crosses
have been generally resilient in this week's pull back and the falls were generally shallow.
We'd prefer to long yen crosses on risk rally should today's Non Farm Payroll deliver expectations
and prefer GBP/JPY based on bearishness in EUR/GBP.
Yesterday, ECB cut the main refinancing rate by -25 bps to 0.5% in May, in response to
the easing inflation and rising unemployment rate in the 17-nation Eurozone. Risks of further
easing remain to the downside and President Draghi signaled that the central bank would
not avoid a negative deposit rate. The special liquidity facilities are also maintained until
at least the middle of 2014. Elsewhere, Chinese non-manufacturing PMI dropped
slightly to 54.5 in April. Australian PPI rose to 1.6% quarter on quarter in Q1 as expected.
The Sterling will face another test from PMI services today. Eurozone PPI, US factory orders
and ISM services will also be released.