Stocks corrected lower as the NFP data indicated the US economy generated almost 400K new jobs. This was more than expected and will help the Federal Reserve to continue hiking grates. This supported the dollar and the EURUSD is looking a bit weak. DAX however is still in an uptrend and so is the USOIL that just traded into new highs for this month. Gold is trading in a range and could therefore provide intraday trading opportunities in both directions today and tomorrow. There are no major economic data releases today and both Germans and French have bank holidays so the European session could be quiet today. The next key risk event is the RBA interest rate decision and rate statement on Tuesday. By reading further, you agree with our disclaimer at the end of this report and acknowledge that we do not provide investment advice.
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EURUSD – Last week EURUSD tried to penetrate a major resistance level at 1.0761 but failed. Now we have a lower high in the 8h chart at the same level. This bearish indication suggests we should prepare to find shorting opportunities in EURUSD today. If the 1.0704 support is broken decisively I look for short trades with a target at 1.0642. Alternative scenario: The market fails to break the support and rallies to 1.0804.
DAX – I said on Friday morning that expected DAX to be in a buy the dips mode. This was based on a belief that the market has bottomed. And as expected, the market turned higher from the support levels I gave in Friday’s report. At the time of writing this DAX is trading higher intraday and (as long as Friday’s low isn’t violated) the market is likely to test Friday’s high. Last week was a momentum loss week (open and close very close to each other) but the bullish trend is still intact. So the momentum is to the upside it makes sense to look for swing trades on the long side. The nearest key S&R levels are at 14398, 14440, 14605 and 14639.
USOIL trade into new highs for this month. The market is in an uptrend and thus is a candidate for long trades (swing) on pullbacks. The nearest key S&R levels are 113.70, 115.95 and 119.10. If the market sells off and breaks the rising trendline (currently) at 111.20 decisively, then we could see a move to 108. Therefore the market stays bullish above 111.20.
GOLD – Last week was a loss of momentum week in XAUUSD. The market started to lose momentum already the the week before and has been lately ranging between 1828 and 1874. I warned earlier that Russia might be still selling gold as other sources of financing are dwindling to due increasing sanctions. This is why it was my view that the rally in gold might not last long.
Also, the stock markets are acting pretty well (e.g. DAX has very likely bottomed) and the US indices aren’t looking too bad either. Friday’s average earnings numbers suggested that salaries haven’t started to contribute to inflation and in fact, the year on year number of 5.2% was down from April (5.5% ). If there are more signs of inflation easing off, then the bids in gold could soften more. If gold doesn’t violate the 1847.30 support level it’s likely to trade higher today and test Friday’s high at 1874. Alternatively, if the market breaks below 1847 we probably see a move to 1832 or so.
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 been drifting lower since early May as equity investors have moved over to T-Bonds in search of safety.|
|Employment||The May non-farm payrolls increased by 390K (436K previous) while the participation rate was confirmed at 62.3% (62.2% previous). The unemployment rate remained unchanged at 3.6%.|
|Inflation||The US annual inflation growth for April slowed down and came in at 8.3%. This represented a 0.2% drop from the 41-year high of 8.5% in March. It was, however, above the analysts-predicted number of 8.1%.|
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The Next Main Risk Events
- AUD – Cash Rate
- AUD – RBA Rate Statement
- CAD – Ivey PMI
- EUR – Main Refinancing Rate
- EUR – Monetary Policy Statement
- EUR – ECB Press Conference
- USD – Unemployment Claims
- CAD – BOC Gov Macklem Speaks
For more information and details see the TIOmarkets economic calendar here.
Chief Market Analyst
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