WHAT WE ARE LOOKING AT
- USD starting to strengthen again: After yesterday’s pullback, the USD has started to regain strength once more this morning. This is ahead of a crucial Nonfarm Payrolls report, so the move may consolidate. However, any signs of mounting recession risks will point to further USD strength
- GBP gains are faltering today: The outperformance boost that GBP got yesterday from the announcement that UK PM Johnson would be stepping down in his role, is already looking done.
- Indices are cautious this morning: A Wall Street rally into key resistance leaves indices at an important turning point. We continue to position for near-term rallies to be sold into.
- Data trading: It is all about Nonfarm Payrolls today. Traders initially react to the headline jobs growth but subsequently, other metrics such as unemployment, wage growth and participation rate are all considered to generate an overall picture. Prior revisions are also a key factor. CAD traders will be eyeing Canadian unemployment too.
US recession risks continue to mount and whilst there are occasional near-term rebounds in risk appetite, they tend to be short-lived before the next bout of selling pressure hits. Yesterday’s risk rally has allowed equity markets an uplift, whilst the US dollar has also been pulled lower. However, we see these as near-term moves. Today’s Nonfarm Payrolls is the next data point that the market will be looking at for signs of stress in the US economy. For now, any bad news on economic data is good for the dollar (seen as a safe haven asset) whilst any assets deemed to be higher risk are being sold. Any negative surprise in the payrolls data is likely to induce this reaction once more.
The June US jobs report will be key on the economic calendar today. Headline Nonfarm Payrolls growth of 268,000 is expected in June, a reduction from the 390,000 in May. Traders will be watching other metrics too, including unemployment (expected to remain steady), wage growth (expected to reduce slightly) and participation rate (forecast to remain flat). The Canadian unemployment data will also be watched by CAD traders, with the rate expected to remain flat.
Market sentiment is cautious ahead of payrolls: USD is starting to regain ground once more, whilst US futures are slipping back initially. There is a cautious feel to major markets which are likely to start to hold ground ahead of the payrolls data as the European morning continues.
Treasury yields very slightly lower: Investors are tentatively buying US bonds (pulling yields lower) this morning.
Fed hawks speak: The FOMC’s Waller (permanent voter, very hawkish) has noted that inflation does not seem to be coming down and the Fed needs to be “much more restrictive” with “large increases” in “frontloaded hikes”. He called for a 75bps hike in July and favours a 50bps hike in September. Also, the FOMC’s Bullard (2022 voter, considered the biggest hawk on the FOMC) believes that there is a good chance of a “soft landing”. He is looking for the Fed Funds rate to be 3.5% this year.
Shinzo Abe shot: The former Japanese Prime Minister has been shot whilst campaigning and is in critical condition.
UK Prime Minister to step down: After an acrimonious 48 hours, the UK Prime Minister Johnson has chosen to step down (ahead of being forced out). He has said he will continue as Prime Minister until the Conservative Party can elect a new leader to take over.
Cryptocurrencies higher: Crypto has had a decent few days. Bitcoin has rallied above $21,850 to its highest level since 16th June. It is c. +1% this morning.
ECB President Lagarde speaking today: Christine Lagarde is speaking at 1255BST today. EUR traders will be watching.
- US Nonfarm Payrolls (1330BST) Headline jobs growth of +268,000 is expected in June (after 390,000 in May). Unemployment of 3.6% (3.6% last month) and Average Hourly Earnings of 5.0% (5.2% last month) are also forecast.
- Canadian Unemployment (1330BST) The jobless rate is expected to remain at 5.1% in June (5.1% in May)
MAJOR MARKETS OUTLOOK
Broad outlook: Risk appetite is cautious ahead of payrolls, with the USD strengthening once more. However, indices are consolidating.
Forex: The USD has had another shot in the arm this morning and is regaining significant strength.
- EUR/USD continues to accelerate lower and is increasingly targeting parity. Since the breakdown below 1.0350 earlier in the week, the market has barely looked back. Intraday rallies are being sold into. The only caveat is that the RSI is increasingly stretched under 30 (c. 25 this morning) and at some stage, there could be a snap-back rally. There is initial resistance at 1.0160/1.0220 but the main resistance of overhead supply starts at 1.0350.
- GBP/USD unwound well yesterday but has fallen over this morning at 1.2052 and is accelerating lower once more. The bull failure has now formed a downtrend over the past two weeks. Momentum remains negatively configured and this simply continues the run of lower highs where rallies are a chance to sell. A retest of 1.1875/1.1900 is likely, whilst there is almost no support until 1.1410.
- AUD/USD rebounded into the overhead supply between 0.6830/0.6870 and seems to be once more an area where bull failures are forming. This is bolstering the trend of lower highs over the past five weeks. With RSI momentum confirmed in a negative configuration, near-term rallies are a chance to sell. We favour a retest of the 0.6760 support area, whilst there is potential for further downside towards the 0.6650 area in due course. Resistance at 0.6895 is key near term.
Commodities: Precious metals remain negatively configured whilst oil is consolidating around initial resistance in a rally.
- Gold spent yesterday in consolidation above $1732 but the move lower is threatening once more this morning. Although the support at $1720 is intact for now, with the lack of appetite to buy, we look to use any near-term gains as a chance to sell. A move towards the $1676, crucial 2021 support, cannot be ruled out. However, the RSI is extremely oversold around 25 so we must be on alert for a technical rally. We are watching initial resistance at $1749/$1752 and then $1784/$1786.
- Silver has been consolidating having found support at $18.91. However, the market is edging lower initially this morning and any risk negative reaction to the payrolls report could see another leg of selling pressure. Below $18.91 is further two-year lows with the next support c. $18.40. The RSI remains around 25 and is oversold, so there is scope for a near-term technical rally to help to unwind oversold momentum. Initial resistance around $19.48 needs to be broken to open the way towards the more considerable resistance between $20.20/$20.45.
- Brent Crude oil has rallied hard to bolster the medium-term range support band around $98/$102. The move has rebounded to test the initial resistance of $107.60/$108.60 but is consolidating ahead of Nonfarm Payrolls. This is seen as another mean reversion that could swing the market back towards the middle of the medium-term range once more, c. $113/$116.
Indices: Indices recovering into near-term pivot resistance leaves them at a crossroads.
- S&P 500 futures have recovered well in recent sessions to move back into the resistance between 3876/3948. This will now be an important test for the near to medium-term outlook. The RSI momentum has again recovered into the 50/55 area where previous rallies within the three-and-a-half-month downtrend have faltered. We favour selling a faltering rally and look for failure signals.
- German DAX has broken the sharp four-week downtrend and recovered into the overhead supply resistance of the band 12,820/12,955. This will be a key test to see whether near-term rallies are still a chance to sell. The RSI remains correctively configured. Support at 12,375/12,436 is growing, with initial support at 12,600/12,675.
- FTSE 100 has swung higher once more as the choppy trading between support around 6970/7015 and resistance of 7300/7370 continues to play out. Momentum remains correctively configured with the RSI consistently below 50 which favours selling near-term rallies. Initial support at 7156.
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