Sive Morten
Special Consultant to the FPA
- Messages
- 18,644
Fundamentals
Reuters) - U.S. employment gains slowed more than expected in January as the boost to hiring from unseasonably mild weather faded, but rising wages and an unemployment rate at an eight-year low suggested the labor market recovery remains firm.
Nonfarm payrolls increased by 151,000 jobs and the unemployment rate slipped one-tenth of a percentage point to 4.9 percent, the lowest since February 2008, the Labor Department said on Friday. The payrolls gain was a sharp step-down from the average 231,000 jobs per month during the fourth quarter.
"The fact that payroll gains fell back to earth is not necessarily a bad sign. Most indications are that the job market in the U.S. is on solid footing and improving," said Nariman Behravesh, chief economist at IHS in Lexington, Massachusetts.
Economists had forecast employment increasing by 190,000 in January and the jobless rate steady at 5 percent. The economy added 2,000 fewer jobs in November and December than previously reported.
On top of a 0.5 percent jump in average hourly earnings, which was the biggest gain in a year, employers increased hours for workers. Manufacturing, which has been undermined by a strong dollar and weak global demand, added the most jobs since August 2013.
Economists said the combination of strong wage growth and falling unemployment suggested a March interest rate increase from the Federal Reserve could not be completely ruled out.
The dollar rose against a basket of six major currencies on the data after hitting a roughly 15-week low on Thursday. Prices for U.S. government debt initially fell, but pared losses as stocks on Wall Street extended their decline.
"The lower unemployment rate and rising wages further support the view that the labor market is doing nothing but tightening," said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania. "Clearly, there are more uncertainties today than when the Fed raised rates in December and hinted that there could be four increases this year. But the labor market is absolutely not one of them."
Tightening financial market conditions and signs that both the domestic and global economies were slowing had undercut the case for a Fed rate hike next month and lowered the probability of monetary policy tightening this year.
The U.S. central bank raised its short-term interest rate in December for the first time in nearly a decade.
Federal Reserve Chair Janet Yellen has said the economy needs to create just under 100,000 jobs a month to keep up with growth in the working-age population.
The economy, especially voters' perceptions of their job prospects, will likely be an issue in the November elections. President Barack Obama lauded the labor market progress.
"This progress is finally starting to translate into bigger paychecks. The United States of America right now has the strongest, most durable economy in the world," Obama told reporters at the White House.
Republican National Committee chairman Reince Priebus, however, said the economy was "still failing the millions of Americans who have given up looking for work."
WEATHER PAYBACK
January's softer job gains were payback after the warmest temperatures in years bolstered hiring in weather-sensitive sectors like construction. January employment also lost the lift from the hiring of couriers and messengers, which was buoyed in November and December by strong online holiday sales.
The economy grew at a 0.7 percent annual rate in the fourth quarter, restrained by headwinds that included the strong dollar and efforts by businesses to sell off inventory.
A separate report from the Commerce Department showed the buoyant dollar cutting into exports in December, causing the trade deficit to widen 2.7 percent to $43.4 billion.
In January, the unemployment rate fell even as more people entered the labor force. The labor force participation rate, or the share of working-age Americans who are employed or at least looking for a job rose one-tenth of a percentage point to 62.7 percent. It remains near four-decade lows.
Low participation could crimp job growth as the supply of labor shrinks, unless a strong rise in wages lures more people back into the labor force. The private sector accounted for all employment gains in January, adding 158,000 positions.
The services sector created 118,000 jobs, the fewest in 10 months. That was because temporary help services fell 25,200 and courier and messenger employment declined by 14,400 jobs. Hiring in these categories normally rises during the holiday season.
Educational services lost 38,500 jobs, but retail payrolls added a strong 57,700 positions. Hiring could slow in the months ahead after a number of retailers, including Walmart and Macy's announced dozens of store closures.
The embattled manufacturing sector surprisingly added 29,000 jobs last month, while mining laid off 7,000 more workers. Mining payrolls have decreased by 146,000 since peaking in September 2014. About three-fourths of the job losses over this period have been in support activities for mining.
Further losses are likely after a report on Thursday showed energy firms in January announced plans to lay off 20,246 workers. Oil prices have plunged about 70 percent in the last 18 months, forcing firms like oilfield services provider Schlumberger to slash their workforces.
Construction payrolls rose 18,000, cooling off after adding 146,000 jobs in the fourth quarter. Government employment fell 7,000.
Speculators slashed bullish bets on the U.S. dollar for a sixth straight week, as net longs fell to their lowest level since roughly the third week of October, according to Reuters calculations and data from the Commodity Futures Trading Commission released on Friday.
The value of the dollar's net long position dropped to $18.20 billion in the week ended Feb. 2, from $23.85 billion in the previous week. It was the first time in 15 weeks that net dollar longs came in below $20 billion.
Speculators have been reducing their stash of dollar longs, concerned that external market stress caused by a slowdown in China and the decline in oil prices could further slow the Federal Reserve's gradual tightening policy. That would be a negative scenario for the dollar.
The dollar index is down 1.7 percent so far this year. Speculators also reduced net shorts on the euro to the
lowest level since late October. This week net euro short contracts totaled 87,073 contracts from 127,215 the previous week.
Net long positions on the yen, meanwhile, fell to 37,245 contracts, from 50,026 the week before. The outlook on the yen has been negatively affected after the Bank of Japan last week took one of its main interest rates
into negative territory. The Reuters calculation for the aggregate U.S. dollar position is derived from net positions of International Monetary Market speculators in the yen, euro, sterling, Swiss franc and
Canadian and Australian dollars.
Japanese Yen (Contracts of 12,500,000 yen)
Feb. 2, 2016 week Prior week
Long 82,108 92,628
Short 44,863 42,602
Net 37,245 50,026
At the same time, guys, we see that Net long position has contracted on reducing of open interest. As data shows - it means that some positions were closed but not because short positions were opened.
Today it was really difficult choice what to discuss in weekly research, but I've just thought that JPY now shows most bright picture. Although as EUR as NZD are still interesting as well.
Just to finalize "Fundamental" part here - let me add 2 cents. All this "bla-bla-bla" by analysts of big banks and funds from CNBC, Bloomberg TV is a good stuff, no doubts. But I see the core stands in efficiency of BoJ attempt to reduce national currency value. Take a look - they have taken unprecedented measures to do this. First, they have started QE analog and decided to push reserves in economy to stimulate consumption and reduce value of the Yen. It seems that effect was mild. Now they have taken last possible measure - negative interest rates.
What do we see? Yes, first reaction was absolutely logical, USD/JPY has skyrocketed even above our expectations. But when this has happened - we said, wait a bit, don't rush to do a final conclusion. And what do we have now? This rally on BoJ decision of negative rate was totally erased by yesterday's drop. Since NFP was good for USD, why USD/JPY is dropping?
Guys, this is most important moment. It tells that investors and traders do not believe in efficiency of BoJ to hold Yen appreciation. Besides, BoJ has no other tools to impact on situation - all financial tools already have been applied. All that they could do is... right, - direct interventions... And it is not much time will pass before we will get them. They just have no choice. Take a look at gold. It has grown again yesterday, even on USD growth. Recall what we talk within recent 2-3 months - geopolitics, guys. Situation in the world is fragile. Yen is safe haven currency, that's why it moves higher. With the rumors of free money distribution for Germans (1000 EUR per month) and Swiss (2'500 CHF per month), with rumors that EU works on possible limitation cash turnover and turning totally to electronic money (they want to forbid any cash purchases for more than 5K EUR), it is difficult to expect Yen's weakness. So let's see what we will get. But it seems that Yen could continue move up with temporal pauses due BoJ interventions.
Technicals
Monthly
Monthly trend is bearish here. First important moment of the year is test of YPP and Yen has dropped lower. It tells about existing of bearish sentiment here.
As we've noted previously here is the combination that we would like to play. Yen stands at major 5/8 Fib resistance level. And has confirmed DRPO "Sell" pattern. Even last part of the thrust up has 8 bars and it is sufficient for trading. So I congrats those of you who have taken short on our last research in December.
Also guys, may be existence of DRPO, even at Fib level is not sufficient. But, as you can see price has spiked up slightly former top. It means that we've got reversal swing and - we have bearish W&R that makes DRPO pattern more reliable.
Potential target of this setup - 50% support of most recent thrust up. It stands approx. around 113. But, if we will get some kind of AB-CD retracement after reversal swing - downward action could be significantly stronger. Also it will depend on how market will react on YPS1 @ 115.40 area.
Also guys, take a look - we have not just simple Fib resistance but Agreement. AB-CD pattern is not very nice, but this is the only one that we have here. Anyway, it's target has been hit.
Right now as Yen stands nice with DRPO "Sell" direct pattern and dropped significantly, we do not have any reason to speak on DRPO "Failure" pattern. So let's keep standing with DRPO "Sell" for now.
That's being said - sentiment, trend and directional pattern here are bearish. We have to destination points - 115.40 and 113.50.
Weekly
This time frame is very important for coming week. Trend is bearish, recent drop is also bearish stop grabber that suggests moving below neckline of H&S pattern. But 113-115 area is deadly combination for any bearish setup. Sometime it probably will be broken if fundamental situation on JPY will not change, but at first touch this area could bring a lot of problems to bears.
On Friday market almost has formed reversal candle with just single exception - Yen has not created new top. But it has dropped significantly, closed below the lows of previous week and even mostly engulfs the range of previous 2 weeks. After such action move down should continue.
At the same time we have rock hard support just below neckline and this could bring negative consequences for any trade who will try to hold bearish position while market will move through this range.
Take a look - YPS1, AB=CD target + Fib support = Agreement support @113.50-114 area. Also guys, 113.50 is minimal target of monthly DRPO. And finally - this will be weekly oversold.
This leads us to following conclusion. If you have bearish positions - you could keep it, but be ready abandon this boat around 114 area, or somehow protect your profit by tight stops. Although Yen has dropped below YPP and MPS1, it is difficult to suggest what will happen around 114. May be it will turn to some sideways consolidation, may be even H&S will be cancelled, but definitely some bullish reaction on this support will follow.
Daily
So, daily trend has turned bearish, line crossing on MACD stands with steep angle. Although we expect downward continuation, right now market stands at support - neckline and oversold. Downward action was rather strong, so may be week will start from upside bounce.
Take a look that WPS1 also stands in our target cluster - 114.94, so support of weekly area will be even stronger.
If upside retracement still will happen - most probable destination is 118.30-119.60. It includes WPP, K-resistance stands slightly higher, also this is former consolidation that took place in September:
1-hour
To start upside retracement market probably should form some upside reversal pattern. Right now we see that Yen has formed bullish butterfly and has turned to sideways action. Theoretically it could turn to H&S with flat head, may be some other pattern will be formed...
Anyway since drop was really strong, we do not think that this potential retracement is worthy to be traded. This is too risky. Mostly we're interested with it because it could give us better entry point:
Conclusion
We have bearish view on USD/JPY (bullish on JPY) in long-term perspective. As techincal as fundamental factors show possible further Yen appreciation. The core of our long-term view is investors' disappointment in BoJ efforts to make Yen weaker. This is important also because BoJ has applied all major tools to weaken the Yen. But based on recent reaction this still is not very successful.
Meantime on daily chart after Friday's drop Yen stands at support that could trigger upside retracement.
The technical portion of Sive's analysis owes a great deal to Joe DiNapoli's methods, and uses a number of Joe's proprietary indicators. Please note that Sive's analysis is his own view of the market and is not endorsed by Joe DiNapoli or any related companies.
Reuters) - U.S. employment gains slowed more than expected in January as the boost to hiring from unseasonably mild weather faded, but rising wages and an unemployment rate at an eight-year low suggested the labor market recovery remains firm.
Nonfarm payrolls increased by 151,000 jobs and the unemployment rate slipped one-tenth of a percentage point to 4.9 percent, the lowest since February 2008, the Labor Department said on Friday. The payrolls gain was a sharp step-down from the average 231,000 jobs per month during the fourth quarter.
"The fact that payroll gains fell back to earth is not necessarily a bad sign. Most indications are that the job market in the U.S. is on solid footing and improving," said Nariman Behravesh, chief economist at IHS in Lexington, Massachusetts.
Economists had forecast employment increasing by 190,000 in January and the jobless rate steady at 5 percent. The economy added 2,000 fewer jobs in November and December than previously reported.
On top of a 0.5 percent jump in average hourly earnings, which was the biggest gain in a year, employers increased hours for workers. Manufacturing, which has been undermined by a strong dollar and weak global demand, added the most jobs since August 2013.
Economists said the combination of strong wage growth and falling unemployment suggested a March interest rate increase from the Federal Reserve could not be completely ruled out.
The dollar rose against a basket of six major currencies on the data after hitting a roughly 15-week low on Thursday. Prices for U.S. government debt initially fell, but pared losses as stocks on Wall Street extended their decline.
"The lower unemployment rate and rising wages further support the view that the labor market is doing nothing but tightening," said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania. "Clearly, there are more uncertainties today than when the Fed raised rates in December and hinted that there could be four increases this year. But the labor market is absolutely not one of them."
Tightening financial market conditions and signs that both the domestic and global economies were slowing had undercut the case for a Fed rate hike next month and lowered the probability of monetary policy tightening this year.
The U.S. central bank raised its short-term interest rate in December for the first time in nearly a decade.
Federal Reserve Chair Janet Yellen has said the economy needs to create just under 100,000 jobs a month to keep up with growth in the working-age population.
The economy, especially voters' perceptions of their job prospects, will likely be an issue in the November elections. President Barack Obama lauded the labor market progress.
"This progress is finally starting to translate into bigger paychecks. The United States of America right now has the strongest, most durable economy in the world," Obama told reporters at the White House.
Republican National Committee chairman Reince Priebus, however, said the economy was "still failing the millions of Americans who have given up looking for work."
WEATHER PAYBACK
January's softer job gains were payback after the warmest temperatures in years bolstered hiring in weather-sensitive sectors like construction. January employment also lost the lift from the hiring of couriers and messengers, which was buoyed in November and December by strong online holiday sales.
The economy grew at a 0.7 percent annual rate in the fourth quarter, restrained by headwinds that included the strong dollar and efforts by businesses to sell off inventory.
A separate report from the Commerce Department showed the buoyant dollar cutting into exports in December, causing the trade deficit to widen 2.7 percent to $43.4 billion.
In January, the unemployment rate fell even as more people entered the labor force. The labor force participation rate, or the share of working-age Americans who are employed or at least looking for a job rose one-tenth of a percentage point to 62.7 percent. It remains near four-decade lows.
Low participation could crimp job growth as the supply of labor shrinks, unless a strong rise in wages lures more people back into the labor force. The private sector accounted for all employment gains in January, adding 158,000 positions.
The services sector created 118,000 jobs, the fewest in 10 months. That was because temporary help services fell 25,200 and courier and messenger employment declined by 14,400 jobs. Hiring in these categories normally rises during the holiday season.
Educational services lost 38,500 jobs, but retail payrolls added a strong 57,700 positions. Hiring could slow in the months ahead after a number of retailers, including Walmart and Macy's announced dozens of store closures.
The embattled manufacturing sector surprisingly added 29,000 jobs last month, while mining laid off 7,000 more workers. Mining payrolls have decreased by 146,000 since peaking in September 2014. About three-fourths of the job losses over this period have been in support activities for mining.
Further losses are likely after a report on Thursday showed energy firms in January announced plans to lay off 20,246 workers. Oil prices have plunged about 70 percent in the last 18 months, forcing firms like oilfield services provider Schlumberger to slash their workforces.
Construction payrolls rose 18,000, cooling off after adding 146,000 jobs in the fourth quarter. Government employment fell 7,000.
Speculators slashed bullish bets on the U.S. dollar for a sixth straight week, as net longs fell to their lowest level since roughly the third week of October, according to Reuters calculations and data from the Commodity Futures Trading Commission released on Friday.
The value of the dollar's net long position dropped to $18.20 billion in the week ended Feb. 2, from $23.85 billion in the previous week. It was the first time in 15 weeks that net dollar longs came in below $20 billion.
Speculators have been reducing their stash of dollar longs, concerned that external market stress caused by a slowdown in China and the decline in oil prices could further slow the Federal Reserve's gradual tightening policy. That would be a negative scenario for the dollar.
The dollar index is down 1.7 percent so far this year. Speculators also reduced net shorts on the euro to the
lowest level since late October. This week net euro short contracts totaled 87,073 contracts from 127,215 the previous week.
Net long positions on the yen, meanwhile, fell to 37,245 contracts, from 50,026 the week before. The outlook on the yen has been negatively affected after the Bank of Japan last week took one of its main interest rates
into negative territory. The Reuters calculation for the aggregate U.S. dollar position is derived from net positions of International Monetary Market speculators in the yen, euro, sterling, Swiss franc and
Canadian and Australian dollars.
Japanese Yen (Contracts of 12,500,000 yen)
Feb. 2, 2016 week Prior week
Long 82,108 92,628
Short 44,863 42,602
Net 37,245 50,026
At the same time, guys, we see that Net long position has contracted on reducing of open interest. As data shows - it means that some positions were closed but not because short positions were opened.
Today it was really difficult choice what to discuss in weekly research, but I've just thought that JPY now shows most bright picture. Although as EUR as NZD are still interesting as well.
Just to finalize "Fundamental" part here - let me add 2 cents. All this "bla-bla-bla" by analysts of big banks and funds from CNBC, Bloomberg TV is a good stuff, no doubts. But I see the core stands in efficiency of BoJ attempt to reduce national currency value. Take a look - they have taken unprecedented measures to do this. First, they have started QE analog and decided to push reserves in economy to stimulate consumption and reduce value of the Yen. It seems that effect was mild. Now they have taken last possible measure - negative interest rates.
What do we see? Yes, first reaction was absolutely logical, USD/JPY has skyrocketed even above our expectations. But when this has happened - we said, wait a bit, don't rush to do a final conclusion. And what do we have now? This rally on BoJ decision of negative rate was totally erased by yesterday's drop. Since NFP was good for USD, why USD/JPY is dropping?
Guys, this is most important moment. It tells that investors and traders do not believe in efficiency of BoJ to hold Yen appreciation. Besides, BoJ has no other tools to impact on situation - all financial tools already have been applied. All that they could do is... right, - direct interventions... And it is not much time will pass before we will get them. They just have no choice. Take a look at gold. It has grown again yesterday, even on USD growth. Recall what we talk within recent 2-3 months - geopolitics, guys. Situation in the world is fragile. Yen is safe haven currency, that's why it moves higher. With the rumors of free money distribution for Germans (1000 EUR per month) and Swiss (2'500 CHF per month), with rumors that EU works on possible limitation cash turnover and turning totally to electronic money (they want to forbid any cash purchases for more than 5K EUR), it is difficult to expect Yen's weakness. So let's see what we will get. But it seems that Yen could continue move up with temporal pauses due BoJ interventions.
Technicals
Monthly
Monthly trend is bearish here. First important moment of the year is test of YPP and Yen has dropped lower. It tells about existing of bearish sentiment here.
As we've noted previously here is the combination that we would like to play. Yen stands at major 5/8 Fib resistance level. And has confirmed DRPO "Sell" pattern. Even last part of the thrust up has 8 bars and it is sufficient for trading. So I congrats those of you who have taken short on our last research in December.
Also guys, may be existence of DRPO, even at Fib level is not sufficient. But, as you can see price has spiked up slightly former top. It means that we've got reversal swing and - we have bearish W&R that makes DRPO pattern more reliable.
Potential target of this setup - 50% support of most recent thrust up. It stands approx. around 113. But, if we will get some kind of AB-CD retracement after reversal swing - downward action could be significantly stronger. Also it will depend on how market will react on YPS1 @ 115.40 area.
Also guys, take a look - we have not just simple Fib resistance but Agreement. AB-CD pattern is not very nice, but this is the only one that we have here. Anyway, it's target has been hit.
Right now as Yen stands nice with DRPO "Sell" direct pattern and dropped significantly, we do not have any reason to speak on DRPO "Failure" pattern. So let's keep standing with DRPO "Sell" for now.
That's being said - sentiment, trend and directional pattern here are bearish. We have to destination points - 115.40 and 113.50.
Weekly
This time frame is very important for coming week. Trend is bearish, recent drop is also bearish stop grabber that suggests moving below neckline of H&S pattern. But 113-115 area is deadly combination for any bearish setup. Sometime it probably will be broken if fundamental situation on JPY will not change, but at first touch this area could bring a lot of problems to bears.
On Friday market almost has formed reversal candle with just single exception - Yen has not created new top. But it has dropped significantly, closed below the lows of previous week and even mostly engulfs the range of previous 2 weeks. After such action move down should continue.
At the same time we have rock hard support just below neckline and this could bring negative consequences for any trade who will try to hold bearish position while market will move through this range.
Take a look - YPS1, AB=CD target + Fib support = Agreement support @113.50-114 area. Also guys, 113.50 is minimal target of monthly DRPO. And finally - this will be weekly oversold.
This leads us to following conclusion. If you have bearish positions - you could keep it, but be ready abandon this boat around 114 area, or somehow protect your profit by tight stops. Although Yen has dropped below YPP and MPS1, it is difficult to suggest what will happen around 114. May be it will turn to some sideways consolidation, may be even H&S will be cancelled, but definitely some bullish reaction on this support will follow.
Daily
So, daily trend has turned bearish, line crossing on MACD stands with steep angle. Although we expect downward continuation, right now market stands at support - neckline and oversold. Downward action was rather strong, so may be week will start from upside bounce.
Take a look that WPS1 also stands in our target cluster - 114.94, so support of weekly area will be even stronger.
If upside retracement still will happen - most probable destination is 118.30-119.60. It includes WPP, K-resistance stands slightly higher, also this is former consolidation that took place in September:
1-hour
To start upside retracement market probably should form some upside reversal pattern. Right now we see that Yen has formed bullish butterfly and has turned to sideways action. Theoretically it could turn to H&S with flat head, may be some other pattern will be formed...
Anyway since drop was really strong, we do not think that this potential retracement is worthy to be traded. This is too risky. Mostly we're interested with it because it could give us better entry point:
Conclusion
We have bearish view on USD/JPY (bullish on JPY) in long-term perspective. As techincal as fundamental factors show possible further Yen appreciation. The core of our long-term view is investors' disappointment in BoJ efforts to make Yen weaker. This is important also because BoJ has applied all major tools to weaken the Yen. But based on recent reaction this still is not very successful.
Meantime on daily chart after Friday's drop Yen stands at support that could trigger upside retracement.
The technical portion of Sive's analysis owes a great deal to Joe DiNapoli's methods, and uses a number of Joe's proprietary indicators. Please note that Sive's analysis is his own view of the market and is not endorsed by Joe DiNapoli or any related companies.
