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by Charalambos Pissouros

Covid Infections Hit New Record, Canada Jobs Data on the Agenda

The US dollar and the Japanese yen were the main gainers among the G10s, while equities pulled back, as global infections from the coronavirus hit a new daily record. As for today, apart from headlines and developments surrounding the coronavirus, CAD-traders may also pay close attention to Canada’s employment report for June.

USD and JPY Up, Equities Down, as Virus Cases Hit New Daily Record

The US dollar rebounded against all but one of the other G10 currencies on Thursday and during the Asian morning Friday. It gained the most against NOK, SEK, EUR, and AUD in that order, while the currency against which it lost some ground was JPY.

USD performance G10 currencies

The strengthening of the dollar and the yen, combined with the fact that the Aussie was among the main losers, suggests that financial markets turned back to risk-off trading. Indeed, turning our gaze to the equity world, we see that most major EU and US indices were a sea of red, with the only exception being Nasdaq. The tech-heavy index rose 0.63%, hitting its fifth record closing high in six days, helped by gains in Amazon, Microsoft, Nvidia and Apple. It seems that tech stocks remain unaffected from headlines raising fears with regards to the coronavirus, as consumers could still use tech services even if new lockdown measures are adopted around the globe. In any case, the negative investor morale rolled over into the Asian session today, with Japan’s Nikkei 225 and China’s Shanghai composite sliding 0.98% and 1.36% respectively. This was the first decline in Chinese stocks in more than a week. Perhaps investors saw yesterday’s headlines and developments as an opportunity to book profits after the surge to a five-year high.

Major global stock indices performance

With infected cases around the globe hitting a new record yesterday, it’s not strange why market participants decided to reduce their risk exposure. The US also reported a new record, heightening fears of another round of lockdown measures in the world’s largest economy. Several states have already halted or reversed their reopening, while in Australia, Melbourne, the nation’s second largest city, has begun a new shutdown.

Daily change in coronavirus cases and deaths

Yesterday, we noted that as long as most of the globe continues to ease the first round of restrictions, we would see decent chances for equities to rebound and continue trending north. We still hold that view, but we will turn a bit more cautious now. If more nations decide to stop their economic reopening or even reintroduce “stay at home” measures, the global economy may not be able to weather the hit, and thus, the damages could be much worse this time. This is the reason we see low chances for another large-scale global lockdown, but again, we cannot rule that scenario out. We would turn neutral for now with regards to equities and the broader market sentiment. We prefer to wait for a clear break above some key resistances before we start examining again the resumption of the prevailing uptrends.

DAX – Technical Outlook

In the beginning of this week, the German DAX found resistance near the 12845 hurdle and has been slowly moving lower since. It is now trading below a short-term tentative downside resistance line taken from Monday’s high. Although there is a chance to see a further slide, let’s not forget that the index is still balancing above a short-term tentative upside line, drawn from the low of June 15th, which may provide additional support if tested. That said, as long as the price remains between the two lines, we will stay neutral.

If the buyers manage to push DAX above the aforementioned downside line and also above the 12710 barrier, marked by the high of July 9th, that may open the door for a further upmove. The index might then travel to the current highest point of July, at 12845, a break of which could set the stage for a drift to the highest point of June, at 12932.

Alternatively, a break of the previously-mentioned upside line and a price-drop below the 12232 hurdle, marked by the low of July 2nd, may invite more sellers into the game, allowing DAX to slide further. The index could then travel to the 12081 obstacle, a break of which might set the stage for a drop to the 11955 level, marked by the lows of June 25th and 29th.

German DAX 4-hour chart technical analysis

CAD-traders Await Canada’s Employment Report

Apart from headlines and developments surrounding the coronavirus, CAD-traders will also pay close attention to Canada’s employment data for June, due out later in the day. The unemployment rate is expected to have declined to 12.0% from 13.7%, while the net change in employment is forecast to show that the economy has gained 700k jobs after adding 289.6k in May.

Canada unemployment rate

At its most recent meeting, the BoC kept interest rates unchanged and said that given the improvement in short-term funding conditions, it reduced the frequency of its term repo operations and its program to purchase bankers’ acceptances. Officials also said that the Canadian economy appears to have avoided the most severe scenario presented in the Bank’s April Monetary Policy Report and that the economy is expected to resume to growth in the third quarter. However, with the headline inflation rate for May falling to -0.4% yoy from -0.2%, and the core one sliding to +0.7% from +1.2%, it may need a very strong employment report to allow Canadian policymakers to stay comfortably on the sidelines for a while more.

USD/CAD – Technical Outlook

After a strong rebound from one of its key support areas, at 1.3488, USD/CAD is now seen recovering almost everything what it had lost during Wednesday’s trading. In addition to that, the rate has violated a short-term downside resistance line taken from the high of May 22nd. Such a move might be considered as a positive for the near-term outlook, however, we would prefer to wait for a break above the current highest point of this week, at 1.3624, which may clear the way for some larger advances.

A break above the aforementioned 1.3624 barrier, would confirm a forthcoming higher high and could send the rate to the 1.3652 zone, marked by an intraday swing low of June 30th, a break of which could send USD/CAD even further north. That’s when we will aim for the high of June 26th, at 1.3715, where the pair may get halted. That said, if the bulls still see it as a temporary obstacle and manage to break that hurdle, the next possible resistance level to consider could be at 1.3737, marked by an intraday swing high of June 1st.

On the other hand, if the rate falls back below the previously-discussed downside line, this could make the bulls worry. But to get a bit more excited with the downside, we would prefer to wait for a break of the 1.3488 hurdle, marked near the lows of June 23rd and July 9th. Such a move would confirm a forthcoming lower low and may clear the path to the 1.3437 area, a break of which might set the stage for a move to the 1.3353 level, which is marked by an intraday swing low of June 10th.

USD/CAD 4-hour chart technical analysis

As for the Rest of Today’s Events

During the European morning, we already got Norway’s CPIs for June. The headline rate ticked up to +1.4% yoy from +1.3% as was expected, while the core one inched up to +3.1% yoy from +3.0%. The forecast was for the core rate to stay unchanged.

Norway CPIs inflation

At their latest meeting, Norges Bank officials kept interest rates unchanged at 0.0%, repeating that they will keep them at that level for some time ahead. That said, they appeared somewhat more optimistic than previously, saying that since the prior meeting, activity has picked up faster than expected, the unemployment has fallen more than anticipated, and oil prices have risen. Thus, with oil prices trading slightly higher than back then, inflation rates near their May prints may allow policymakers to sit comfortably on the sidelines and reiterate their sanguine language.

From the US, we have the PPIs for June. The headline rate is forecast to have increased to -0.2% yoy from -0.8%, while the core one is anticipated to have ticked up to +0.4% yoy from +0.3%.

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