Thursday, November 19, 2020

Continuing claims likely to decline at its current pace; dollar yen bears likely to benefit

  • Dollar
  • Yen
  • US payrolls


Analysts’ Pick: Continuing claims likely to decline at its current pace; dollar yen bears likely to benefit

  • Virus concerns and consequently lockdowns is likely to weigh on the labour market, but to possibly to a small extent in initial weeks as retailers ramp up for the holiday season
  • Increased job postings in October suggests that retailers have already started to increase their workforce in anticipation
  • Initial claims as a result will probably continue to decline but at an even slower pace
  • Continuing claims likely to decline close to its current pace as tailwinds from the holiday season and expiring eligibility is likely to help the dataset
  • Vaccine and virus concern more likely to impact the dollar, which in our view, is more likely to benefit dollar yen bears in both the medium and long-term

Initial Jobless claims in the US looks likely to remain elevated. Lockdowns have started and we expect initial jobless benefit claims to start reflecting some of this pressure on the labour market as well. However, with the incoming Thanksgiving and Christmas holiday seasons, this impact is likely to be less pronounced as retailers are more likely to increase instead of decrease worker headcount to better cope with an expected increase in e-commerce demand. As a result, we expect to continue to see a slowdown in the number of people applying for new jobless claims, but at a slower rate than before. This would be in line with the median forecasts of Bloomberg-surveyed economists of a 700,000 increase in initial jobless claims. Investors should however note that this would still implicitly suggest that layoffs remain at elevated levels with more to come in the approaching weeks as restrictions put more pressure on certain industries and job types. Additionally, the lack of additional fiscal stimulus in the US is starting to show its impact as well with the latest being New York's Metropolitan Transport Authority announcing that it would need to slash 40% of subway services and half of commuter rail services without federal aid.

Increasing risk for stricter lockdowns in more populous states in the US suggests upward pressure on initial claims in likely


Continuing claims may decline at a faster pace due to holiday effects, and as this week's release is unlikely to reflect the impact of reinforced lockdowns across more states due to the one-week lag. Additionally, the month of October saw job openings rising 3.3% MoM according to data from Glassdoor. More importantly, retail as well as trade and transportation job openings saw an increase of 2.1% and 14.6% MoM respectively, a sign that hiring is picking up as retailers anticipate stronger holiday season tailwinds to drive sales and deliveries for the rest of the year. Unemployed workers reaching their 26th week of claims will probably continue to distort continuing claims as well and be reflected in the latest of data. Overall claims still appear to be declining, but at a slower rate than before at extreme levels that were previously only experienced during periods of crisis.

Aggregated continuing claims continue to hover above 20 million; expect today’s data to continue to show aa decline close to its current pace


As jobless claims both are likely to come close to expectations, we do not expect large movements from the greenback on its release. More important will be the ongoing virus concerns in the US, which should start to put some upward pressure on the dollar in the short-term, especially in the current environment in which we view to be the market being overly optimistic on vaccine developments as those benefits will likely only materialise in the long-term. Only limited upward pressure on the dollar is likely. A more opportunistic trade in the current environment is likely on the dollar yen in our view, as the safe haven currency is more likely to benefit from both short-term hedges against the uptick in Covid-19 cases in the US as well as on the longer-term sentiment that the greenback may decline on the back of record levels of fiscal and monetary stimulus in the US. We see only a slight upside in USD/JPY due to market regression, possibly towards 104.21's level in the immediate future before declining towards 103.19’s level in the short-to-medium-term in line with our analysis.

Technical Analysis:


The dollar yen has shown strong bearish signals as it continues to close well below its 100-day moving average. Failure to break levels governing a downward parallel channel also suggests that we are more likely to see the dollar yen continue to face downward pressure in the medium-term. Fundamentals mostly support this as well, as the dollar is looking increasingly weak from the record stimulus measures from both the US central bank and federal government. The recent vaccine developments is also highly suggestive of a weaker dollar moving forward, which would be in line with the recent post-crisis performance of the currency pair. In the short-term, the dollar yen is trading close to an oversold level in the RSI and appears to be near the end of a bearish signal in MACD. This does signal that we likely see some slight upside in the immediate future as some traders take profits, however we view this upside to be mostly limited due to fundamentals over the medium and long term.

Support: 103.19 / 102.03 / 101.21

Resistance:  104.21 / 104.95 / 105.71

USD/JPY Chart (H4)