After rallying 30.6 per cent since mid-May the LYFT shares dropped 3.11% in yesterday’s trading. The sell-off came after it was announced that President Biden plans to nominate David Weil to run a U.S. Labor Department division that oversees worker rights in companies such as UBER and LYFT. More on this story later in this report. The US equity indices remained weak in New York trading yesterday. We suggested yesterday that there were signs of weakness that indicated risk aversion ahead of Thursday’s inflation report being the dominant theme.  By reading further you agree with our disclaimer at the end of this report and acknowledge that we do not provide investment advice.

The S&P 500 (+0.02%) and the Dow Jones Industrial Average (-0.09%) closed almost unchanged. Technology stocks together with small and medium cap stocks managed to gain some ground though as the Treasury yields moved lower. The Nasdaq Composite index finished the day 0.31% higher while the Russell 2000 was the clear outperformer with a 1.06% gain. The US 10-yr  Treasury yield fell to 1.513%. This is the lowest level in a month for the 10-year yield.

The energy and the consumer discretionary sector stocks saw the most inflows, with these sectors closing higher by 0.86% and 0.81% respectively. Perhaps encouraged by the rally in the price of crude oil (+1.18%) Investors moved money away from the relative safety of the healthcare (-0.31%), consumer staples (-0.84%) and utilities (-0.85%) sectors.

The best performing stock yesterday was SiriusXM (SIRI, +7.4%). The company said its subsidiary Sirius XM Radio is planning to offer $1.5 billion of senior notes due 2028. The company will use the proceeds to fully redeem outstanding debt (3.875% senior notes) due 2022 and partly repay other outstanding debt. LYFT (-3.11%) was the underperformer yesterday as the shares dropped on the back of the news that Presiden Biden plans to nominate David Weil to run a U.S. Labor Department division that oversees worker rights in companies such as UBER and LYFT. This comes after Labor Secretary Marty Walsh said in April that independent contractors in the US should be classified as employees who are entitled to work benefits. The shift in policy would be likely to raise costs for companies such as Uber UBER and Lyft LYFT

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The price of gold declined by 0.23% after the bulls encountered heavy resistance at 1903.60 and were forced to liquidate some of their positions. This resulted in a down day for XAUUSD. The big cryptocurrencies saw continued weakness in yesterday’s trading. ETHUSD closed 4.51% lower while LTCUSD and BTCUSD closed down by 0.75% and 0.51% respectively. There was, however, a loss of downside momentum in LTCUSD and BTCUSD. This resulted in hammer candles being formed. They indicate potential direction change. 

The JOLTS report published monthly by the US Bureau of Labor Statistics showed that hiring didn’t keep up with the big increase in job openings in April. According to the report both job openings and hiring increased in April. Openings, however, outnumbered hirings by over 2 million. The number of layoffs declined, while people quitting their jobs surged. This indicates that employees are more confident about job prospects elsewhere. Such development is inflationary as it is likely to push the salaries higher. Today’s main risk event is the BOC rate statement. No change is expected in the overnight rate.

After rallying 30.6% since mid-May the LYFT shares have run into a resistance area at 58.30 – 58.80 area. Yesterday’s new driven sell-off took the price below the rising trendline support and brought the share price near to a recent reactionary low at 56.20. This level is not far from the 23.6% Fibonacci retracement level at 55.86. The loss of momentum at resistance combined with the negative news about potentially tightening regulatory environment (and higher costs associated with it) means the supports are at risk of being broken. Should this happen the next significant support area can be found at 52.20 – 53.30 (the 50% Fibonacci retracement level and the 20-day SMA). A decisive break above the latest reactionary high at 59.10 would negate this bearishness and potentially take the price to 61.50 – 63.00 area.

After rallying almost to the 61.8% retracement level two days ago the sellers came in yesterday and the pair reacted lower closing below the 20-day SMA. This morning price action has been sluggish. If the 1.2164 support (yesterday’s low) breaks the bears could take the pair down to the 23.6% retracement level at 1.2142. Tomorrow’s CPI figures from the US will, however, be the real test and traders wait for the inflation data to guide them in the USD positioning. It has been argued by analysts that the short USD trade is quite crowded. This view is supported by the recent weakness in the EURUSD. The nearest resistance levels are at 1.2202 and 1.2254.

In the latest Bullish & Bearish Markets video (here) we highlighted a selling opportunity in EURCHF. The pair was trading at the 38.2% retracement level and making lower highs. We suggested the pair would be likely to move to the 1.0890 – 1.0906 range. Now the pair has dropped over 50 pips and has almost hit the target zone. The pair remains weak after breaking the 1.0926 support which is now a likely resistance level.  

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 FEDThe Fed has on several occasions repeated its commitment to ultra-accommodative monetary policy. The rates are likely to stay near zero but now some Fed officials have said that the Fed should start considering potentially tapering their asset purchases.
StimulusThe US lawmakers have authorised approximately five trillion dollars of economic stimulus and the Biden administration has indicated it will seek to deliver another two trillion dollars in infrastructure spending.
YieldsAfter trending higher since the beginning of August 2020, the Treasury yields have been moving lower or sideways. All in all, the yields and interest rates are extremely low on both nominal and real basis.
PayrollsThe latest miss in payrolls was the biggest in the recorded history. Analysts expected to see one million new jobs in April but the actual number came in at 266K (down from 770K in March).
InflationAs per CPI inflation is running at a 5% annual pace over the last 6 months, while PPI shows annual inflation pace at 7.4% over the same period.

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 Market News & Facts 

  • US Republican senators made some progress in infrastructure talks
  • RBA may start to dismantle some of the QE structure soon
  • China May CPI came in at 1.3% y/y (1.6% expected) 
  • China PPI was confirmed at 9.0% y/y (8.5% expected)
  • China state media to Australia: Diversify your iron ore exports away from China
  • Australia NAB business confidence for May 20 (26 previous) 
  • Australia NAB business conditions for May 37 (32 previous)
  • US report: Virus leak from a Chinese lab in Wuhan is plausible
  • Yellen will persist with Biden’s $4tr spending plan even if it increases inflation
  • The head of Rosneft: the world will face acute oil shortage in the long-term
  •  President of El Salvador to make Bitcoin a legal tender
  • Tesla Tesla cancels its Model S Plaid Plus
  • Flexible QE expected from the RBA
  • The first signs of tapering as the Fed starts to exits corporate bond positions
  • Lagarde says ECB is committed to preserving favourable financing conditions
  • Mora, EU chief coordinator of Iran talks optimistic about an agreement next week
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The Next Main Risk Events

  • CAD – BOC Rate Statement
  • CAD – Overnight Rate
  • USD – Crude oil inventories
  • USD – 10-yr bond auction

For more information and details see the TIOmarkets economic calendar here.

Trade Safe!

Janne Muta
Chief Market Analyst

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DISCLAIMER TIOmarkets offers exclusively consultancy-free service. The views expressed in this blog are our opinions only and made available purely for educational and marketing purposes and do NOT constitute advice or investment recommendation (and should not be considered as such) and do not in any way constitute an invitation to acquire any financial instrument or product. TIOmarkets and its affiliates and consultants are not liable for any damages that may be caused by individual comments or statements by TIOmarkets analysis and assumes no liability with respect to the completeness and correctness of the content presented. The investor is solely responsible for the risk of his/her investment decisions. The analyzes and comments presented do not include any consideration of your personal investment objectives, financial circumstances or needs. The content has not been prepared in accordance with any legal requirements for financial analyzes and must, therefore, be viewed by the reader as marketing information. TIOmarkets prohibits duplication or publication without explicit approval. FX and CFDs are leveraged products. They are not suitable for every investor, as they carry a high risk of losing your capital. Please ensure you fully understand the risks involved. All the prices in this report are CFD prices based on price charts provided by TIOmarkets unless otherwise stated. 

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