Labor Momentum Builds

Daily Analysis - 15/05/2015

Claims Data Improvements Bolster US Labor Outlook


Jobless claims data from the United States continues to trend near multi-decade lows as the pickup in labor conditions offsets losses in shale producing states, reaffirming the positive trajectory in employment fundamentals.

Initial Claims Near Multi-Decade Low

The broad decline in economic data was offset yesterday by another surprisingly low initial claims print. Although the employment recovery is not necessarily as admittedly rosy as the headline numbers suggest the trend lower in claims is a positive sign that labor conditions continue to improve. Initial claims printed just shy of 42-year lows with the 4-week average falling to approximately 272,000 with the trend lower intact. However, in sharp contrast to employment, producer prices showed that deflation continues to encircle the globe. On expectations of gains in producer prices, data surprised to the downside, missing estimates and printing in negative territory. Gold continues to rise in spite of the pervasive deflationary forces. Nevertheless, persistent weakness in the dollar is seeing gold overcome major technical levels on the upside not crossed in 3-months as the S&P 500 hit a new record.


Interest Rate Risks Contained

According to comments from European Central Bank President Mario Draghi, low interest rates have not created “imbalances” in the monetary union, contrary to claims otherwise. Although he confessed that unconventional monetary policy measures sometimes result in misallocation of investment, his argument is aided by accelerated growth in key core nations. However, similar to previous remarks, Draghi highlighted that structural reforms would assist in boosting the efficacy of monetary policy measures designed to boost economic momentum in the Euro Area. The recovery in inflation bolsters his arguments that his asset purchase program is aiding in the rehabilitation of the Euro, however, it is running into headwinds as the available supply of outstanding government bonds shrinks. The Euro continues to add to the momentum of the last few sessions, rallying higher against both the US dollar and UK pound.


US Oil Production Rises

In conjunction with rising output from other global producers, US oil production ticked up in the latest week, highlighting the uncertainty ahead for oil prices as supply continues to outpace demand and price-wars for market share take their toll. The recovery in prices has seen producers pull supplies previously held in storage to sell production at higher levels than previously available over the last few months. The number of completed well in the Bakken Shale region has just hit a new record with drilling expected to rebound after nearly 6-months of falling rig counts. The Energy Information Administration which releases the weekly EIA crude oil inventories figures has revised lower the estimates for 2015 and 2016 oil production with output forecast to fall from June to September. Oil prices continue to trend higher despite supply concerns.


EURCAD Head and Shoulders Technical Pattern

The weakness in the US dollar has seen both the Canadian dollar and Euro appreciate as the outlook for interest rates is pushed back in definitely on the back of weaker fundamental data. With the European Central Bank projected to continue easy monetary policies and asset purchases, the lack of further policy easing from the Bank of Canada will likely see CAD appreciate further against EUR. The head and shoulders setup in the EURCAD pair has a bearish bias with the right shoulder of the pattern forming. Positions taken near the neckline of the pattern should target the support levels of the shoulders on the downside. Any move above the resistance indicated by the shoulders should be taken as a sign that EURCAD could continue to appreciate.


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