The first Friday of the month is upon us and that can only mean one thing. US NFP day. Given the ongoing pandemic and the mind boggling weekly initial and continuing claims data there is an expectant air of doom and gloom. It will be bad. Horrendous maybe. But how bad? Throw in some similar data north of the border and Friday is shaping up for a day of depressing news.

Markets were expecting a drop of 8 million non-farm payrolls and an unemployment rate pushing 20%. What they got, was something very different. A record INCREASE of 2.5 million jobs and the unemployment rate dropping to 13.3%. Data in Canada would be equally astonishing. From the retail trader to the most eminent Wall Street economists, the release is greeted with shock and questions. And of course a degree of a self-gratification from President Trump. As any trader knows, it is not for us to question the immediate accuracy but to go with the flow. An immediate jump in equities was a foregone conclusion. If they can rally on bad numbers, they had better be able to rally on good ones! The end result was a  rally that saw the DJ up over 1,000 points at one point although that would reduce to 830 points by the close. The USD would also benefit catching the market out after a week of USD weakness. EURUSD would slip back to 1.1280 from a high of 1.1380 and GBPUSD would slip from a high of 1.2730 to close at 1.2670. USDCAD would do its usual NFP dance with traders trying to balance the effect of strong data in both countries. An initial drop from 1.3510 to 1.3390 saw a close nearer to 1.3425. Oil would take cheer from the positive news, closing above $39 a barrel. Could oil prices really have been in negative territory just over a month ago? XAU would weaken in the face of a stronger USD initially touching 1,671. By days end we are back at 1,685 but still well off the day’s highs of 1,716. The moves in FX, equities and commodities are hardly shocking given the data. It’s the data itself that has us all scratching our heads. Watch out for some revisions ahead.

I thought I’d take a look at an hourly AUD chart to end the week. Looking back to the beginning of the year we can see how the AUDUSD chart has developed over the course of the pandemic and how it looks in relation to US equities, in this case the S&P 500 (blue line). While not a perfect correlation, the close relationship is clear especially on the rally back up. Pay attention to 0.7032  – this was the high of the year for AUDUSD back in early January. Friday’s high was 0.7013 before the retracement. Will it be a step too far to make a new high for year, or just brief pause before higher levels are achieved? US equities will likely hold the key.

David Hannigan
Author

A graduate of the Cass Business School, Dave's career began with Credit Suisse as an Equity Options Trader on the London Stock Exchange, before moving into the world of FX with Chemical Bank and Citibank. 1994 saw him join National Australia Bank, first as a Senior Dealer, then Senior Vice President and Chief Dealer.

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