ECB Increased Its PEPP, US And Canada Jobs In Spotlight

7 min readJun 5, 2020

Yesterday, the ECB delivered its monetary policy decision, which included more stimulus. Also, the US released its initial jobless claims, where the figure had once again beaten the forecast in the negative way. US and Canada employment numbers will be in focus today.

ECB Increased Its PEPP

Yesterday, the ECB delivered its monetary policy decision, which included more stimulus. As it was expected prior to the announcement, the Bank increased its pandemic emergency purchase programme (PEPP) by another 600 billion euros, which will be extended at least till June 2021. The initial expectation was for at least another 500 billion euros. The ECB hopes this could help support businesses and households, and ease the effects of the coronavirus, which had battered the eurozone’s economy. The central bank is also hoping to try and bring inflation higher, which is already very low. Currently, the annual YoY CPI sits at +0.1%. However, the Bank’s target is to have that number below, but close to +2.0%, which for now looks like a very difficult task to do.

In terms of other announcements from the ECB yesterday, they kept their main refinancing operations rate at the same 0.00%. Also, the overnight liquidity rate, together with the bank’s deposit facility rate, were kept at their prior levels, at +0.25% and -0.50% respectively. The euro traders took a huge liking of the news delivered by the ECB, with the common currency rising against most of its major counterparts. It only fell against SEK and NOK.

EUR/GBP — Technical Analysis

In the beginning of this week, EUR/GBP managed to rebound from its short-term upside support line taken from the low of May 5 th. The pair drifted higher, but yesterday it found strong resistance near the 0.9006 hurdle. Today, the rate is still struggling to move above that barrier, which might cause EUR/GBP to correct slightly lower, before trying to move up again. For now, we will take a somewhat positive approach.

A small retracement lower could bring the rate closer to the 0.8962 hurdle, which is marked by the low May 28 thand by an intraday swing high of June 4 th. If the pair stalls there, the bulls might take it as a good opportunity to step in and drive EUR/GBP up again. If so, the rate may accelerate back to the 0.9006 barrier, a break of which may clear the path to the 0.9055 level, marked by the highest point of May.

On the other hand, if the aforementioned upside line breaks and EUR/GBP falls below the 0.8866 hurdle, which is the current lowest point of this week, that may spook the buyers from entering anytime soon. That move would also confirm a forthcoming lower low and open the door for further declines. We will then aim for the 0.8825 obstacle, a break of which may clear the way to the 0.8806 zone, or even the 0.8789 level, marked by the inside swing high of May 7 th.

US Labour Market

The US released its initial jobless claims yesterday, where the figure had once again beaten the forecast in the negative way. The number had come out at 1877k, but the initial expectation was for a 1800k. In our yesterday’s daily report, we’ve mentioned that the US initial jobless claims have been following a tendency of beating the forecast in the negative way. Yesterday’s reading is so far proving that, unfortunately, that is the case. However, on the positive side, the numbers are declining slowly.

In addition to the initial jobless claims, the US released its continuing jobless claims, which shows how many people in the US continue to receive unemployment benefits. That number is not very satisfying, as during yesterday’s release, it showed that around 21 and half million US citizens continue to take financial help from the government. The forecast prior to the release was at 20050k. The reading from yesterday indicates that, unfortunately, not all is good in the US labour market, as people keep struggling in finding jobs.

This leads us to the main US data, which we will closely watch today, and that’s the US unemployment number, together with the Non-farm payroll figure. Although the Non-farm reading is believed to have improved, going from the previous -20537k to -8000k, the unemployment reading is expected to have increased largely. The prior number was at 14.7%, the forecast currently stands at -19.8%. If the actual number comes out close to what is expected, this would mean that one fifth of the US workforce is out of work. If the actual figures do come out as a disappointment in relation to their forecasts, the equity market might give up some of its gains, which were achieved in the days, prior to today.

The US average hourly earnings on MoM basis for the month of May is believed to have declined sharply from the previous +4.7% to +1.0%. Although that looks like a major decline, let’s not forget that for at least 12 years, that number had never surpassed +1.0%. So if the actual reading gets back below +1.0%, but stays above zero, we can say that the indicator had stabilised back to its norm.

USD/CHF — Technical Outlook

Yesterday, USD/CHF finally broke below the lower side of its range, between the 0.9590 and 0.9800 levels, where it has been trading in from around the end of March. The pair drifted lower and found support near the 0.9544 hurdle, from which the rate rebounded this morning. However, at the time of writing, USD/CHF is moving lower again. For now, we will take a bearish approach, especially if the rate falls below yesterday’s low.

A drop below the 0.9544 zone, which is yesterday’s low, would confirm a forthcoming lower low and increase the chances of a further move south. The pair may then drop to the 0.9500 area, marked by the low of March 29 th, which may provide a temporary hold-up. However, if the sellers are still dominating the arena, a further slide may set the stage for a test of the 0.9447 level, marked by an intraday swing low of March 16 th.

Alternatively, if the rate somehow gets pushed back above the lower bound of the aforementioned range, which is at 0.9590, that may spook the bears from the field temporarily. Such a move would also place the rate back into the previously-discussed range. If USD/CHF moves above the 0.9638 barrier, marked by the low of May 20 thand the high of June 2 nd, more buyers may join the action. The pair could then travel to the 0.9673 obstacle, a break of which might clear the way to the 0.9719 level, marked by the high of May 28 th.

Canada Jobs Are In Focus As Well

The neighbouring Canada will show how it has managed to battle the pandemic and how many jobs it had lost during May. Although we currently do not have any forecasts for the employment change and the labour participation rate, the country’s unemployment number is believed to have risen from the previous 13.0% to 15.0%. If the jobless percentage rises above the current expectation, we could see CAD coming under some selling interest against some of its major counterparts.

As for the rest of today’s events

Canada will also release its Ivey PMI numbers, which have no forecast available at the time of writing. One thing we know for sure, is that for two months in a row, the readings are sat heavily below 50, in contraction territory. Even if the May numbers show up better than the previous ones, we doubt they will be able to climb back above 50. If so, that may continue to apply pressure on the Canadian economy and the BoC.

Disclaimer:

The content we produce does not constitute investment advice or investment recommendation (should not be considered as such) and does not in any way constitute an invitation to acquire any financial instrument or product. The Group of Companies of JFD, its affiliates, agents, directors, officers or employees are not liable for any damages that may be caused by individual comments or statements by JFD analysts and assumes no liability with respect to the completeness and correctness of the content presented. The investor is solely responsible for the risk of his investment decisions. Accordingly, you should seek, if you consider appropriate, relevant independent professional advice on the investment considered. The analyses and comments presented do not include any consideration of your personal investment objectives, financial circumstances or needs. The content has not been prepared in accordance with the legal requirements for financial analyses and must therefore be viewed by the reader as marketing information. JFD prohibits the duplication or publication without explicit approval.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 83% of retail investor accounts lose money when trading CFDs with the Company. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Please read the full Risk Disclosure.

Originally published at https://www.jfdbank.com on June 5, 2020.