The FP Markets research team produce First Light News during the early hours of the European session, ensuring traders and investors are up to date in the FX space for the day ahead.

Good morning.

Yesterday’s data out of the US revealed a slight miss in the Institute for Supply Management (ISM) manufacturing PMI, dipping to 46.9 in May (vs 47.0 expected and 0.2 percentage points lower than 47.1 recorded in April) and thus remaining nestled in contractionary territory. The ISM also revealed that the Employment Index indicated another month of expansion, registering 51.4, up from April’s reading of 50.2. This is despite expectations forecasting a dip to 49.8.

Out of the labour market, we are still seeing resilience, with both the latest ADP release and weekly jobless claims coming in solid ahead of today’s non-farm payrolls. The ADP jobs report showed that the economy added 278,000 private jobs in May (vs +170,000 expected). This is a meaningful print that exceeded the upper band of the forecast range (+250,000).

This is the second month we’ve seen a full percentage point decline in pay growth for job changers’, said Nela Richardson, chief economist, ADP. Pay growth is slowing substantially, and wage-driven inflation may be less of a concern for the economy despite robust hiring.

Additional data for the labour market was the weekly jobless claims which was largely in line with market expectations (235,000) at 232,000. Continued claims, or insured unemployment (SA), was 1,795,000, an increase of 6,000 from the previous week’s revised level.

The closely-watched US official jobs report for May will be released later today and will be an important watch ahead of this month’s Fed rate decision, with some now calling for a ‘skip’ in rates. It is expected that the economy added 190,000 non-farm payrolls, with the jobless rate ticking up to 3.5% and wage growth poised to cool to 0.3%, down from last month’s 0.5% reading. However, remember that the forecast range for the headline NFP event is between 235,000 and 100,000.

Unable to find acceptance north of 104.30, the US dollar (Dollar Index) propelled south of 104.00 on Thursday amid improved market sentiment. Continued underperformance shines the spotlight on the 50-day simple moving average at 102.37, a dynamic value applied to the daily chart that can (and often does) deliver support and resistance.

(Trading View – Dollar Index Daily Timeframe)

Across the FX space, cyclical currencies finished Thursday on the front foot, underpinned by improved risk sentiment and heightened prospects of a rate skip. AUD/USD outperformed in the G10, staging a spirited rally (+1.0%) and is +0.7% higher this morning, followed by the NZD/USD, adding +0.9% yesterday. Of technical relevance here, you may recall that the research team highlighted (Chart of the Day) key support on the daily timeframe for the aforementioned currency pair at $0.5998. Further buying could be seen as far north as the daily ascending support-turned-resistance level taken from the low of $0.6084.

(Trading View – NZD/USD Daily Timeframe)

Europe’s shared currency was also a strong performer against the buck on Thursday ([+0.7%] closing a whisker off session highs), pulling the currency pair north of $1.07. On the data front, euro area inflation cooled to 6.1 in the twelve months to May, down from 7.0% in April, with the core YoY measure also easing to 5.3% in May (5.6% in April). Markets continue to price in around 50 basis points of tightening: two more interest rate hikes into the year-end, followed by subsequent cuts in 2024.

The British pound is also interesting, recording a fifth consecutive day in the green yesterday versus the greenback, lifting the GBP/USD above $1.2500. The Bank of England (BoE) is poised to increase the Bank Rate by another 25 basis points on 22 June.

Major Currencies as of 8:10 am GMT+1

(Trading View)

Headline Events for the Day Ahead:

US Non-Farm Employment Change for May at 1:30 pm GMT+1 (Expected: 190,000; Previous: 253,000).

US Unemployment Rate for May at 1:30 pm GMT+1 (Expected: 3.5%; Previous: 3.4%).

Month-Over-Month US Average Hourly Earnings for May at 1:30 pm GMT+1 (Expected: 0.3%; Previous: 0.5%).

Thanks for reading. Have a great day!

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