02-Jul-2020

1) Nonfarm Payroll: An Upbeat Outcome Could Play Against the Greenback
2) EUR/USD Forecast: Non-Farm Payrolls to Spark a Rally?
3)  GBP/USD: Overbought? Resistance Eyed Ahead Of All-Important Non-Farm Payrolls

 

 

1) Nonfarm Payroll: An Upbeat Outcome Could Play Against the Greenback

Amid a shortened week, the US will publish its June employment figures this Thursday. The Nonfarm Payrolls report is expected to show that the country recovered 3 million jobs in the month, while the unemployment rate is seen contracting from 13.3% to 12.3%.  Average Hourly Earnings are still seen well above average, although returning to pre-pandemic levels. The yearly figure is seen at 5.3% from 6.7% in the previous month. Monthly Average Hourly Earnings are foreseen at -0.7% from -1.0%.

Earlier this week, the US Federal Reserve chief, Jerome Powell, said that macroeconomic indicators, included those related to employment, have shown signs of improvement amid the economy entering a new stage sooner than expected. Indeed, the US has lifted lockdowns as soon as the situation in New York improved.

However, the epicenter moved to the Southern States, with the country reporting record new cases above 40,000 per day for over a week already. The country has over 2.7 million reported cases, and Trump’s medical advisor said that they may reach 100,000 new cases per day if they can’t control the disease. Multiple businesses are going back into lockdown, beyond governmental orders. The situation is worsening, not improving, and the market may not be willing to cheer an improvement in June’s employment data, considering that there could be a major setback in the upcoming months.

Overall, Powell’s words were based on May/June figures, released these last few weeks, which also point to a positive monthly employment report. Starting with the previous Nonfarm Payroll report, which surprised by showing the economy added over 2.5 million positions against another drop expected.

Also, the Challenger Job Cuts showed that US-based employers’ cuts totaled 170,219 in JUNE, down 57% from May’s total of 397,016. However, cuts were over 1.2 million jobs in the second quarter of the year, the highest on record. Meanwhile, the ADP survey showed that the private sector added 2.3 million jobs in June, below the 3 million expected, although May’s reading was revised from -2.76M to +3.06M.

On a down note, Initial Jobless Claims seem to have stabilized at over 2 million. Far from the levels seen at the beginning of the pandemic, the figures related to unemployment are falling at quite a slow pace.

The American dollar is heading into the event with a negative tone, as regardless of the coronavirus-related uncertainty, equities keep rallying. Just this week, the Nasdaq hit a record high, while the S&P 500 is less than 70 points away from its all-time high. An encouraging outcome could further fuel equities and keep the safe-haven dollar under pressure.

The greenback has then more chances of advancing against the JPY and the CHF while rallying equities will favor the most commodity-linked currencies.

The EUR/USD pair has been ranging for these last three weeks, unable to attract investors, confined between 1.1170 and 1.1330. It could happen that speculative interest turns to re-buy the greenback with upbeat numbers, but there are little chances that the pair could pierce the base of the mentioned range.

 

2) EUR/USD Forecast: Non-Farm Payrolls to Spark a Rally?

What cannot go down, must go up – EUR/USD has been rising above the uptrend support line and is moving up amid several positive developments.

Vaccine hopes: Pfizer and BioNTech have reported promising results in their first trial of four COVID-19 vaccines. The two firms said subjects developed antibodies and will proceed with testing of the most successful candidates. Moreover, they are reading the mass production of vaccines, potentially accelerating the deployment of immunization, once it is approved.

Face masks reaching the top? President Donald Trump seemed to have endorsed wearing face masks, saying he would do it and he does it. The U-turn from the Commander-in-Chief – who previously mocked rival Joe Biden for wearing one – may help mitigate the disease. Goldman Sachs estimated that face covers could significantly substitute lockdowns and boost Gross Domestic Product by as much as 5%.

It comes as Republican governors and other party members – including Vice President Mike Pence – said masks are necessary. A picture is worth a thousand words and an image of Trump wearing a mask – like a “Lone Ranger” as he said – may further boost markets.

The need for protection comes amid yet another record day of US cases – over 50,000. Texas has suffered the highest death rate in six weeks as hospitals in Houston are already above normal capacity. Arizona, Florida, and California are additional hotspots.

Consumers have significantly slowed down their activity even before the new restrictions and places that seem to have the virus under control are either re-closing or delaying the reopening. That includes New York City, the financial capital of the world, where indoor dining remains prohibited.

Investors are currently shrugging off the US COVID-19 situation – or in EUR/USD’s case, encouraged by Europe’s success in mitigating the disease. The old continent has opened up to visitors from outside the Schengen zone, in another step marking a return to normal.

Eurozone employment figures for April are set to show a modest increase to 7.7% amid furlough schemes, yet the focus is on America’s jobs report.

Due to America’s long Independence Day weekend, the data is out on Thursday instead of Friday.

Economists expect the all-important US labor market figures to show an increase of three million in June, following the increase of 2.509 million in May. The recovery comes off low points after America lost around 20 million positions in April.

The Unemployment Rate carries expectations for a drop from 13.3% to 12.3% and is of political importance ahead of the presidential elections due in four months. Investors will also pore onto the participation rate, which surged after crashing in April and the U-6 underemployment or  “real unemployment rate” – which is a broader measure of joblessness and stood above 20% in May despite the improvement.

It is essential to note that the Non-Farm Payrolls surveys were taken in the week ending on June 12, before the most recent surge in COVID-19 cases and the consequent lockdowns. ADP’s private-sector jobs report showed an increase of 2.369 million positions, weaker than expected.

The employment component of the ISM Manufacturing Purchasing Managers’ Index remained below 50 – indicating contraction – and well below the upbeat headline figure in that survey.

Overall, the market mood is upbeat and an increase in US jobs may keep it that way – pushing stocks higher and the safe-haven dollar lower. However, investors may return to fear about the virus, especially if labor figures miss expectations.

Euro/dollar has dipped below the uptrend support line that has been accompanying it for around a month and topped the 50 and 100 Simple Moving Averages on the four-hour chart. Moreover, momentum has turned positive, also supporting the bullish case.

Initial resistance awaits at 1.1290, the weekly high, but the bigger prize is 1.1350 – a double-top touched in recent weeks. Further up, 1.1380 and 1.1420 await EUR/USD.

Some support awaits at 1.1250, which is where the 50 SMA hits the price. It is followed by the uptrend support line, coming out at around 1.1220, and then by 1.1185, a weekly low. The next lines are 1.1165 and 1.1075.

 

3)  GBP/USD: Overbought? Resistance Eyed Ahead Of All-Important Non-Farm Payrolls

Cool Britania – GBP/USD has broken above the downtrend resistance line and surged to new highs – buoyed by hopes of a coronavirus vaccine. Pfizer and BioNTech reported progress in initial tests, pushing stocks higher. That put pressure on the safe-haven dollar, and cable’s break above that persistent line propelled the pound to higher ground.

Another effort to defeat COVID-19 is underway at Oxford University and is at a more stage – at least according to Dr. Anthony Fauci, America’s leading epidemiologist.

That seemed enough to outweigh all of sterling’s issues. Brexit talks have yet to yield a breakthrough, Leicester is entering lockdown, and investors were unimpressed by the government’s new stimulus plan. Prime Minister Boris Johnson’s “Build, build, build” promise seemed to recycle old promises and more details are awaited from Rishi Sunak, the Chancellor of the Exchequer.

The focus now shifts to the all-important US Non-Farm Payrolls. Economists expect an increase of around three million jobs in June – extending the recovery from April’s approximate 2.5 million bounce. The world’s largest economy lost around 20 million positions back in April.

Indicators leading to the publication were somewhat soft, with ADP reporting a gain of 2.369 million private-sector positions, below estimates. America’s Unemployment Rate has likely dropped from 13.3% to 12.3%. It is essential to note that the rapid pace of events makes calculations difficult, potentially resulting in a significant surprise to either direction.

The Non-Farm Payrolls surveys were taken early in June, thus unable to capture the surge in coronavirus cases seen later in the month – and the consequent drop in economic activity. People decreased consumption before new restrictions were slapped or reopening was halted. New York City – where COVID-19 is under control – pushed back plans to allow indoor dining.

The US hit a record number of daily infections on Wednesday and Texas fatalities reached the highest in six weeks. Stocks remain upbeat, but that may change later on.

Overall, a satisfactory NFP should keep markets happy and support GBP/USD – yet it may be nearing its limits.

The Relative Strength Index on the four-hour chart is around 70 – entering oversold conditions and implying a downside correction. On the other hand, GBP/USD is trading above the 50, 100, and 200 Simple Moving Averages after the recent surge, and benefits from upside momentum. Moreover, cable has decisively broken above the stubborn downtrend resistance line.

Strong resistance awaits at 1.2550, a high point in late June and that could test overbought conditions. Further above, the next line to watch is 1.2620, followed by 1.2680.

Some support awaits at the round 1.25 level, followed by 1.2455, which provided support early in the day. The next levels are the former separator of ranges at 1.24 and 1.2340.