As usual, we wait to see if the NFP expectations are either exceeded by a significant margin or whether the actual number is way lower than analyst consensus had predicted. The expectation is that today’s number will show 390K new jobs created in April while the unemployment rate is expected to decline to pre-pandemic levels (to a low of 3.5%). There are widespread shortages of labour and this creates uncertainty in the labour market predictions. Therefore, the consensus number of 390K is a bit lower than the March NFP figure (431K). By reading further, you agree with our disclaimer at the end of this report and acknowledge that we do not provide investment advice.
In today’s report trade ideas, analysis and key technical levels on:
- EURUSD – Ranging near the year 2022 low
- USDCAD – Trading inside a tight range
- GBPUSD – Now trading below a resistance area
- GOOG – Bearish after creating a significant market top in 2021
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EURUSD is trading sideways just above the April 28th low I talked about a week ago here. I said at the time that the downside in EURUSD was likely to be limited. The pair has been consolidating without a clear direction even though there was an attempt to break to the upside. In order to re-establish a direction, this market needs to either break the support at 1.0471 or the resistance level at 1.0641. While we don’t have a trend in the market the best trading opportunities are usually near the edges of the range. EURUSD is now trading at a minor resistance level at 1.0583 while the next intraday resistance level is at 1.0604. The nearest key intraday level is today’s low at 1.0482.
USDCAD rallied higher soon after hitting my second target level. Now the pair is trading inside a tight range between 1.2823 and 1.2866. I look for a breakout (which has to happen) in either direction with targets at 1.2771 on the downside and 1.2908 on the upside. The USD index is trading near resistance and reacting lower while the oil market has been strong. This would indicate a move to the downside could be in the cards but as always nothing’s certain before you see the price action proving the thesis right. Therefore, as usual: Follow the money(flows), i.e. keep reading the price action!
GBPUSD broke below the sideways range (at 1.2411 – 1.2614) as the BOE hiked only 0.25% and warned about recession risks. GBPUSD plummeted as a result as traders expected this to impact the future rate hikes from the BOE. In other words, the Fed is expected to be much more aggressive with its rate hikes in the future. Therefore investors and traders sold the Sterling to buy the Dollar. The nearest key S&R levels for today’s trading are 1.2276, 1.2411 and 1.2470.
GOOG has created a long-term market top by breaking below the 2493 resistance level. The failed post FOMC rally was a classic return move that indicates further uncertainty and weakness in this mammoth stock. As long the rallies fail and the stock keeps on breaking supports we have no evidence of aggressive institutional buying. Instead, failing rallies suggest the institutions are using the occasional strength to lighten the load. The next technical support area in GOOG is around the 50% Fibonacci retracement (2024) or roughly 14% below yesterday’s close. The next major support area can be found in the 1700 – 1800 region. That’s about 25% lower than the current market price.
Stock being one of the heavy-weights in Nasdaq and the index as a whole is pressured by rising interest rates it’s likely that (even if we get occasional rallies) downside risks are still substantial. The recent negative earnings surprise (-3.8%, reported: $24.62, estimate: $25.59) must have been priced in already as the earnings release didn’t immediately bring about a new strong wave of selling in the stock. Instead, the stock has been ranging sideways since the earnings report. It seems that investors are, and quite rightly, focused on general market trends, rising yields and inflation risks. Technically the stock is trading at a lower end of a bear channel but the nearest resistance is not very far (at 2493, just above last week’s high). The nearest key S&R levels to watch are 2335.76 and 2465.
Macro Drivers for the USD
As the most followed, invested and traded markets for risky assets are priced in the USD it is helpful to understand what macroeconomic factors impact the other side of the equation, the USD. Whether we are trading EURUSD, XAUUSD or US equity CFDs the factors impacting the dollar, the nominator in the equation, have a significant role in the formation of all medium to long-term price action. The following table summarises the most important fundamentals.
|The Federal Reserve||Fed hiked by 0.5% in May but according to Powell 0.75% hikes are off the table.|
|Stimulus||The Fed is looking to scale down its bond-buying program (QE) but has signalled that it be careful with tightening due to the war in Europe.|
|Yields||The US 10-year treasury yield has risen to 2.187% as investors sell the bonds and adjust to the expected rate hikes.|
|Employment||The March non-farm payrolls increased by 431K while the analyst consensus had predicted 492K new jobs. The unemployment rate dropped to 3.6% and average hourly earnings were in line with expectations (0.4% vs. 0.4% expected).|
|Inflation||The annual headline inflation reading for March came in at 7.5% (7% prior). This was the highest CPI print in 40 years. The core CPI (all items less food and energy) was confirmed at 6.0% (5.5% previous).|
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The Next Main Risk Events
- CAD – Employment Change
- CAD – Unemployment Rate
- USD – Average Hourly Earnings m/m
- USD – Non-Farm Employment Change
- USD – Unemployment Rate
- CAD – Ivey PMI
For more information and details see the TIOmarkets economic calendar here.
Chief Market Analyst
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