05-Jun-2020

1) Horrific Data Can’t Derail Stimulus Trade
2) The Euro Continues To Trend Higher
3) USD/CAD Challenges 3-Month Low; Finds Some Footing at 200-Day SMA

1) Horrific Data Can’t Derail Stimulus Trade

Stock markets are charging higher again on Friday, with Wall Street seen around 1% higher, ahead of what is expected to be a horrific US jobs report.

There are a number of reasons to be cautious in this market but none are clearly as compelling as the grand economic reopening and authorities everywhere pumping out cash like it’s going out of fashion.

The ECB almost doubled its purchases under PEPP yesterday, serving a reminder that central banks are far from out of ammunition despite the onslaught of measures in the last few months. It’s also a reminder of the severity of the situation but that’s a problem for another day, I guess.

We’ll get another reminder of this shortly before the US open, as the Bureau of Labor Statistics releases the latest employment (or lack of) figures. Unemployment is expected to be close to 20% with around eight million losing employment last month. While these numbers are exaggerated by those on temporary government support, they’re none-the-less shocking and a large enough number won’t be so fortunate.

Still, we exist in a market that will be less than 10% from record highs when the opening bell rings which is incredible, given what will have come just an hour earlier. We can’t even argue that worse has been priced in anymore because those losses have been largely erased, this is purely a stimulus and momentum trade and it’s not running shy of either.

Oil is continuing its relentless run higher. It may not quite be benefiting from the stimulus trade like we’re seeing in other markets, but the reopening push is strong in this one. Oil suffered more than anything, unless I missed other prices turning negative a couple of months ago. So its run now has been remarkable but at least this makes sense.

With people leaving their houses, returning to work – maybe even avoiding public transport in favour of the car – and borders reopening, record supply cuts won’t have to last much longer to sustain these prices, even if another month is agreed this weekend. That will take us to the end of July, at which point prices will be at far more sustainable levels, allowing for production to be raised once again.

Gold is hanging in there around $1,700 but isn’t exactly benefiting from this period of dollar weakness. The rally this week in equity markets and continual improvement in risk appetite may be holding it back as it may be re-establishes the relationship that was lost during the early months of the pandemic. The yellow metal looks pretty comfortable around $1,700 so further consolidation may be on the cards, although the path of least resistance – if there is one – seems to be below.

2) The Euro Continues To Trend Higher

The Euro continues to trend higher, extending steep uptrend into ninth consecutive day and hit new nearly three month high at 1.1383 in early European trading on Friday.

ECB’s decision to increase bond-buying program for additional 600 billion Euros further boosted the single currency, already inflated by dollar’s strong fall that resulted in nearly 1% rally on Thursday.

Bulls ignored terrible data this morning which showed record fall in German factory orders in May and for now also ignore overbought daily studies, as Thursday’s long bullish candle and signal on close above Fibo barrier at 1.1292 (76.4% of 1.1494/1.0635) underpin the action.

Also, bulls today broke above 200WMA (1.1333) and weekly close above would add to bullish signals.

Key barrier at 1.1494 (2020 high, posted on 9 Mar) comes in focus, as bulls cleared the last obstacle on the way.

US NFP data is key event today and could further deflate dollar and boost Euro as US unemployment is expected to rise to a record near 20% in May, average earnings to rise 1.0% in May compared to 4.7% April, while non-farm payrolls are expected to show that 8 million people lost their jobs in May, after record drop to over 20 million in April.

Weaker than forecasted US jobs data would further pressure the greenback and push Euro towards its target.

On the other side, positive surprise may deflate Euro’s bulls, which could, accompanied with end-of-week profit-taking, push the price lower.

Broken 200WMA (1.1333) marks immediate support, ahead of weekly cloud top (1.1224) which is expected to hold extended dips and keep bulls in play.

On the bigger picture, despite euro’s LT upmove fm 2017 near 14-year low of 1.0341 to a fresh 3-year peak of 1.2555 in mid-Feb 2018, subsequent selloff to as low as 1.0778 in mid-Feb 2020 signals said impressive rise has ended. Although price staged a surprise rally to a 13-month high at 1.1494 in early part of Mar, euro’s selloff to a near 3-year low of 1.0637 the same month n then a swift rise to 1.1147 suggests LT fall fm 1.2555 has made a low there. This week’s rally abv 1.1147 after 2-months of choppy swings confirms said upmove has once resumed n price is en route twd 1.1370 (38.2% r of 1.2555-1.0637), a weekly close abv there would head twd 1.1494 in Jul/Aug. Only below 1.1000 risks 1.0871, 1.0728.

Thur’s impressive rally fm 1.1196 to a fresh 2-1/2 month high of 1.1361 suggests MT upmove fm 1.0637 is en route to re-test 2020 peak at 1.1494 (Mar) next week. Today, reckon upside is ltd to 1.1400/10 due to o/bot readings on hourly indicators n only below 1.1300 signals temp. top, 1.1257, 1.1200/10.

3) USD/CAD Challenges 3-Month Low; Finds Some Footing at 200-Day SMA

USDCAD is trading around the vicinity of 1.3440 – 1.3515, being the bullish gap from March 6. The pair plunged to a three-month low of 1.3467 on Thursday’s session, hitting the flat 200-day simple moving average (SMA).

The technical indicators are standing in oversold territories in the short-term. The MACD is still falling below its trigger and zero lines, while the RSI and the stochastic are flattening, suggesting a weak bearish momentum.

If sellers continue to have control and drive the pair below the 200-day SMA, initial support could come from the 1.3440 level. Diving further, limitations may arise from the nearby 1.3310 barrier and the 1.3200 psychological number from February 21. If the bears persist, the attention could then move towards the 1.3100 round number.

On the other hand, should buyers drive above the 1.3515 resistance, they could encounter initial strengthened resistance from the 61.8% Fibonacci retracement level of the up leg from 1.2950 to 1.4668 at 1.3610 and the 50.0% Fibonacci of 1.3808. A step above this level, buyers may meet further constrictions from the 1.3850 barrier, which stands slightly above the 20-day SMA. Overcoming these borders, the price may shoot for the 40-day SMA currently at 1.3933 ahead of the 38.2% Fibonacci of 1.4510.