The Dollar Gains Traction Following Robust Employment Report

The dollar gained traction on Friday following the stronger than expected U.S. non-farm payrolls.  U.S. yields moved higher, making the dollar more attractive and weighing on the currency pair.  EU PMI data was in line with expectations, and socialist Sanchez set to replace Rajoy as Prime Minister after lawmakers voted to oust the premier.

Technicals

The EUR/USD moved lower but held up well compared to the USD/JPY which saw robust dollar gains.  Prices are hovering near the 10-day moving average at 1.1682. Support on the EUR/USD is seen near the May lows at 1.1509. Resistance is seen near former support which is an upward sloping trend line near 1.1850. Momentum has turned positive as the MACD (moving average convergence divergence) index generated a crossover buy signal. This occurs as the MACD line (the 12-day moving average minus the  26-day moving average) crosses above the MACD signal line (the 9-day moving average of the MACD line).

U.S. nonfarm payrolls increased more than Expected

U.S. nonfarm payrolls increased a solid 223k in May, more than expectations of a 190K increase. This follows gains of 159k in April and 155k in March, for a net upward revision of 15k. The unemployment rate fell to 3.8% from 3.9% and is the lowest since late 1969. Average hourly earnings rose 0.3% after edging up 0.1% previously and are up 2.71% year over year versus 2.56% year over year. Hours worked were unchanged at 34.5. The labor force participation rate dipped to 62.7% from 62.8%. Other details show the labor force rebounded a modest 12k after dropping 236k in April, while household employment climbed 293k after the prior 3k gain. Government added 5k.

Eurozone manufacturing PMI confirmed

Eurozone manufacturing PMI confirmed at 55.5, as expected. The German reading was revised slightly higher to 56.9 from 56.8, the French revised down to 54.4 from 55.1 and the Italian reading fell back to 52.7 from 53.5. A broad decline in confidence with Markit reporting slower growth of output, new orders, new export business and employment. Growth was led by the Netherlands, Austria and Germany, even as the pace of growth in these countries eased slightly. France, Ireland and Greece meanwhile reported an acceleration. Markit reported that the outlook remained positive with companies reporting that they expect to be higher in one year’s time.

Socialist Sanchez set to replace Rajoy

Socialist Sanchez set to replace Rajoy as Prime Minister after lawmakers voted to oust the premier, who effectively paid for the corruption scandal in his party. The outcome was expected as the Socialists had already sufficient backing going into yesterday’s debate on the vote. Spanish bonds have been underperforming Italian assets. The Socialists may want to open the purse string more, but Spain is in a much better position than Italy on growth as well as debt and the Socialists are not openly Europhobic.

Italian populist set to sweep to power,

Italian populist set to sweep to power, after a last minute reshuffle of the proposed cabinet that replaced controversial Eurosceptic Savona, who as Minister for European Affairs will still be in a position to ruffle feathers in Brussels and Frankfurt.

The UK’s May manufacturing PMI unexpectedly rose

The UK’s May manufacturing PMI unexpectedly rose, rising to 54.4 headline reading after April’s 53.9 outcome, which is a 17-month low. The median forecast had been for a decline to 53.6. Markit, the compiler of the survey, notes there are caveats to the headline improvement. While growth of production accelerated to its best rate on the year so far, this was mostly achieved by the steepest build-up of finished goods inventories in the 26-year history of the survey. There was also a sharp reduction in the backlogs of work. Growth in new business ebbed to an 11-month low, although remaining at overall solid levels. The pace of increase in employment in the sector also moderated to its slowest in 15 months, while cost inflation and supply-chain pressures rose. Respondents remained positive about the year-ahead outlook, with 52% forecasting higher production, but the degree of positive sentiment was at a six-month low.