Worries Re-emerge as PMIs Contract & ADP Misses

The euro broke the key 4-week trendline on Wednesday as US employment worries upended concern about European manufacturing. The US dollar was still the best performer on the day while the euro lagged. Japan is closed for the remainder of the week but chatter is picking up about an ECB surprise. Tuesdays EURUSD shorts were not filled, while AUDCAD remain in progress. For the rest of Intermarket Insights. See below for more details.

The April ADP report showed the US adding 119K jobs, well short of the 170K expected. The prior was also revised lower by 8K. The euro bottomed shortly before the data at 1.3121 and drifted to 1.3160 afterwards. USD/JPY fell 30 pips on the report but held the psychological 80.00 mark.

Market participants are frustrated with range-bound markets but with so many central banks in a dovish mood, its difficult to get excited about any currency. Chatter about a surprise ECB move surfaced after the disappointing European PMIs. Expectations remain low but Draghi could open the door to more LTROs, ECB bond buying or a rate cut in his press conference.

Any of those options would inspire a mixed reaction from the euro. The knee jerk might be to sell euros on rate differential but German yields are already at ultra-low levels. The more-lasting trade is likely to be about improved growth and confidence in Europe due to ECB action. A more straight-forward trade might be to buy risk-sensitive currencies on better growth prospects.

Euro traders are also concerned about bank-capital ratios as leaders meet in Brussels to hammer out new regulations.

With Japan closed the focus is on the antipodeans. The New Zealand dollar fell more than a half-cent after the unemployment rate shot to 6.7% from 6.3% expected in the Q1 report.

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-AB