02-Jun-2020

1) EUR/USD’s Rally Shows Signs of Fatigue
2) AUD/JPY: Bulls Are Leading In the Game, Just Go For Buy It
3) US Dollar Softens Amid Risk-On Sentiment

1) EUR/USD’s Rally Shows Signs of Fatigue

Some European (cash) markets were closed yesterday for Whit Monday. There was little guidance from the US manufacturing ISM (43.1) which came in close to expectations. Social unrest in the US continued to escalate but with little impact on financial markets though, even as cities impose curfews with some warning it could hinder the reopening. Chinese state-run enterprises were instructed to halt purchases of some US agricultural goods. However, president Trump refraining from harsh sanctions during Friday’s much anticipated press conference is viewed more important. FX markets traded calmly. The US dollar lost some ground. EUR/USD eked out a choppy advance, nearing resistance around 1.1167 but closing eventually at 1.1136. USD/JPY went nowhere, closing marginally lower at 107.59. The trade-weighted dollar (DXY) slipped below key support (98.27) and closed at 97.83.

Overnight news flow is thin. Trump threatened to deploy the military to quell protests. Asian markets trade in the green this morning. The Reserve Bank of Australia kept both policy rates and the 3-yr yield target stable at 0.25%. The RBA said monetary and fiscal support is required for some time but thinks that the downturn might be less than earlier expected. The Aussie dollar trades unchanged near the 0.68 pivot. EUR/USD (1.1127), USD/JPY (107.72) and DXY (97.87) all trade muted.

Today’s event calendar is uninspiring. Trading will be dominated by global sentiment, which is fairly constructive. We’re cautious though. Tensions are building on several fronts and risk erupting at a time when a significant amount of good news has been discounted. EUR/USD had a strong run the past week as both the fundamental and technical picture improved. That upleg showed signs of fatigue as it neared resistance around 1.1167 yesterday (61.8% fibo retracement). The pair awaits guidance from the ECB on Thursday and US payrolls (Friday) but has its downside protected by a softer dollar after DXY’s technical break lower.

Sterling rallied from around EUR/GBP 0.90 to 0.891 yesterday. The pound put comfort from PM Johnson wanting to reset his agenda with a speech and financial statement. However, with difficult Brexit talks during this week’s fourth and final round, we’re wary for the move to extend (far) below the 0.89 support area.

2) AUD/JPY: Bulls Are Leading In the Game, Just Go For Buy It

Overall pair is trading and moving in an uptrend and making successively higher highs and higher lows on day to day basis. Pair is trading at 3 month’s fresh high recently it posted a bullish marabuzo candlestick which is providing us bullish signal on daily chart. Well the way bulls are reacting it seems like they are going to approach the 75 .00 level in near term.

Also, bulls are in long drive mood and their upcoming destination is 75.00 and 76.50 level at least. From there they we may see some relaxation mode or correction but this correction again should be taken as buying opportunity. On the flip side, a turn lower below the 72.00 figure could be seen as bearish in the medium-term with supports possibly emerging near the 71.50 and 71.00 levels.

From technical prospective we can see that pair is trading and moving in an uptrend channel where only bulls can be seen. Bulls are dominating the bears at every nook and corner. Overall pair is trading above all the major and minor EMA lines, which is providing us bullish signal for the time being, however some correction can’t ruled out even these correction should be taken as buying opportunity.

Odds are in favor of bulls and our weekly bias remains bullish on the pair as long as pair is trading above 70.00 level. The first week of the week started with a positive note which has boosted up the buyer’s courage. On weekly chart also a clear cut breakout of the 50 EMA line can’t be ignored by bulls which is also providing strength to the bulls.

Also, a bullish crossover on the MACD indicator is providing us bullish signal and RSI is also favoring the bulls as it is trading above 50 levels on weekly chart. The Bollinger band has been stretched out and pair is aligned with upper band of BB. Most of the time pair is trading and sustaining above middle line and upper line.

3) US Dollar Softens Amid Risk-On Sentiment

The US dollar index closed lower for a fifth consecutive day on Monday as hopes of a faster than expected global economic recovery from the COVID-19 pandemic took hold. Markets remained steady despite widespread civil unrest in the United States due to the death of George Floyd and ongoing US/China trade tensions.

Data from Johns Hopkins University indicates that coronavirus COVID-19 global cases have risen to 6,271,577 with 375,683 fatalities. Positive news came out of hard hit Spain on Monday, as health authorities reported no new deaths from the coronavirus in a 24-hour period for the first time since March. Countries around the world have started to ease restrictions, raising expectations of a return to normal life in the coming months.

US stocks made gains on Monday despite widespread riots triggered by George Floyd, a 46-year-old African-American who died in Minneapolis police custody. However, US stock index futures traded lower on Tuesday after President Donald Trump threatened to deploy military troops if state officials are unable to quell violent protests.

Speaking from the White House Rose Garden on Monday, Trump stated: “”I am mobilizing all available federal resources, civilian and military, to stop the rioting and looting, to end the destruction and arson and to protect the rights of law-abiding Americans, including your Second Amendment rights.”

Bloomberg reported on Monday that Chinese government officials told major state-run agricultural companies to pause purchases of some American farm goods including soybeans and pork. Chinese state media described the move as an unsurprising response to US criticism of the supression of pro-democracy demonstrations in Hong Kong.

Meanwhile, the Australia dollar, often used as a proxy for China, rallied to a 4-month high against the US dollar on Monday. This week’s manufacturing surveys from China suggested that its economy is improving. Positive economic news out of China typically lifts the Aussie, since it is Australia’s largest trading partner.

The risk-sensitive New Zealand dollar and Canadian dollar also rallied sharply on Monday as investors chose to focus on the positive news surrounding the coronavirus and shrugged off China/US trade tensions.