Friday was a great day for trading with the markets moving strongly in both directions. The volatility was created by a disappointment after a strong rally on the back of the ADP report the day earlier. The number of new jobs for May was confirmed at 559K (vs +645K expected). The unemployment rate dropped to 5.8% from 6.1%. The drop in the unemployment rate isn’t such great news when it’s happening because of decreasing labour force participation. Friday’s employment report didn’t quite meet the expectations and the worries that the Fed would start tapering of policy support earlier than it had planned. By reading further you agree with our disclaimer at the end of this report and acknowledge that we do not provide investment advice.
As a result, the USD rally that took place after the positive ADP report was reversed and the greenback was sold off heavily in the US session on Friday. We alerted TIOmarkets traders to this trading opportunity in our NFP email on Thursday saying, “should the bulls be disappointed by tomorrow’s release they’d have to readjust to the actual data and this would create volatility. Either way, tomorrow should be a great day for trading”. This was certainly true. We saw increased volatility which meant excellent trading opportunities in both sides (long and short) of the markets.
The big surprise indicated by the ADP payrolls data didn’t materialise. The huge jump in the ADP numbers had the traders and analysts call for new hirings in excess of 800K. Now that these calls didn’t materialise, we have to conclude that analysts are (as so often) again too optimistic about the pace of recovery in the US. However, at the same time, 559K new jobs isn’t a bad number. It just shows that the reality on the ground isn’t as rosy as many would like to believe. This week trader’s focus will be on the US inflation numbers and a European Central Bank meeting.
Stocks rallied as investors took the lower than expected numbers as a sign that this eases the pressure on the Fed to start tapering. NASDAQ Composite (+1.47%) was leading the rally with the S&P 500 rallied (+0.88%) gaining also nicely. Returns from industrials were slightly lower while the small and medium capitalization stocks underperformed. Dow Jones Industrial Average and Russell 2000 gained 0.52% and 0.31% respectively. With the exception of the utilities sector, all the S&P 500 sectors finished the day higher. The best performing sectors in this broad-based buying frenzy were technology (+1.92%) and communication services (+1.43%). Investors exited their positions in the utilities sector stocks leaving the sector down by -0.15%.
BlackBerry Ltd (BB, -12.72%), shares have been moving wildly up and down on Friday in social-media-driven activity. Even though the shares finished down almost 13% on Friday, the stock gained 37.9% for the week. The BB shares are up 98.3% YTD. Biogen shares (BIIB, +4.99%) rallied almost five per cent as the US regulators are expected to decide soon whether to approve the company’s much-discussed Alzheimer’s disease drug. Analysts’ views are divided on whether the FDA will approve the drug. TSLA shares rallied 4.58% as investors piled into technology stocks. No major news on Tesla came out on Friday.
The 10-yr US Treasury yields finished last week slightly higher at 1.57%, after taking a seven basis point dive on Friday. This rallied the price of gold to the resistance level we talked about in Thursday’s Bullish & Bearish Markets video (here). We highlighted the 1890 resistance level as being significant. The price of gold rallied 0.34% above the level before the bears took over and pushed the price down again.
With EURUSD being weak in today’s trading it seems likely that this bearish reaction in XAUUSD could continue in today’s trading. The recent increase in downside volatility in gold is a negative factor short-term but the recent weakness in yields suggests the price of gold has more upside potential after this corrective move is over. The key support and resistance levels for today’s trading in gold are 1854.80 (Friday’s low) and 1896.17 (Friday’s high). Key price areas and levels beyond the nearest levels are 1797 – 1809 (a historical support level and the 50-day SMA), 1845.50 and 1916.55 (the most recent reactionary high).
We highlighted last week how EURUSD a highly important support level at 1.2132 was violated and EURUSD created a lower reactionary high at 1.2254. We also pointed out how on Friday morning EURUSD was trading at the lower end of a downward pointing channel. This allowed TIOmarkets traders to act accordingly (closing shorts and initiating long positions).
Now EURUSD is trading near to the 50% retracement level (at 1.2185) that halted the rally on Friday. This technical resistance coincides with another technical factor too, the 20-period SMA at 1.2176. If this doesn’t keep the lid on EURUSD the next resistance area can be found at 1.2205 – 1.2216 (the 61.8% Fibonacci retracement level and the bear channel high). The nearest key supports are 1.2051 and 1.2103.
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 FED||The 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.|
|Stimulus||The 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.|
|Yields||After 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.|
|Payrolls||The latest miss in payrolls was the second in a row (+559K vs +645K expected). The unemployment rate decreased from 6.1% to 5.8% but the fact that it happened while the labour force participation rate decreased makes it less good news.|
|Inflation||As 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.|
Open a VIP Black account now at www.TIOmarkets.com. We want you to be able to exploit trading opportunities in financial markets with 0 commission and tight spreads. Take advantage of the best trading account in the industry: Tiomarkets VIP Black. For more details on this truly exceptional offering see here.
Market News & Facts
- 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
- Australian May Construction PMI 58.3 (59.1 previous)
- Australian Q1 GDP +1.8% q/q (+1.5% expected)
- RBA’s Lowe taper talk not pushing the AUDUSD higher
- Ramsden at BOE suggests demand could get ahead of supply
- UK Nationwide m/m change in house prices +1.8% (+0.8% expected)
- Chinese authorities relax emission controls, iron ore and AUDUSD higher
- Chinese Caixin manufacturing PMI for May 52.0 (52.0 expected)
- Australian Net exports -0.6% relative to GDP (-1.2% expected)
- New Zealand Business confidence for May 1.8 (vs. previous -2)
The Next Main Risk Events
- AUD – RBA Assist Gov Kent Speaks
- 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.
Chief Market Analyst
Open a VIP Black account now at www.TIOmarkets.com. We want you to be able to exploit trading opportunities in financial markets with 0 commission and tight spreads. Take advantage of the best trading account in the industry: Tiomarkets VIP Black. For more details on this truly exceptional offering see here. For more analysis and commentary, visit our YouTube channel where you can find market commentary videos to support your learning and growth as a trader.
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.
Best pair to trade today Best stocks to trade right now Best time to trade Best time to enter a trad