The markets took a dive on the last trading day of April. US labour data came out on the negative side again. The ECB supported the euro yesterday, by continuing to provide stimulus to the eurozone.
The US equity market closed slightly in the red yesterday, as once again the labour market related data came as a huge disappointment. US initial jobless claims have beaten the 3500K forecast in the negative way, showing up higher, at 3839K. Although the actual figures on a week-by-week are declining, the actual readings keep overcoming initial estimates. The US jobs market is suffering due to the coronavirus lockdown, as companies continue laying off workers, because of falling demand. Despite government’s battle to support the economy, the measures are not currently showing good results. US unemployment is believed to be hitting double digits, which will be shown in the jobs report in the end of next week.
Another set of disappointing data, which we got from the US yesterday, were the MoM change in personal income and spending figures. The initial expectation for the income number was at -1.5%, which already was a very negative forecast comparing to the previous reading of +0.6%. The actual figure came out at -2.0%. The US personal spending number was even worse, in fact, it experienced the largest drop, as far as data goes. The previous number was at +0.2% and the forecast already was at staggering -5.0%. The real figure showed at -7.5%. The US equity market took the news in the negative way. Even the headlines surrounding the positive test results of Gilead’s Sciences Remdesivir drug could not maintain the positivity in the stock market, which was seen in the previous trading sessions.
Today, we will be getting the US ISM manufacturing PMI number for the month of April. It is already a given that the figure will be below the previous 48.5. The big question here is, by how much? Currently, the forecast stands at 36.9. If the actual reading shows up near that expectation, this would be the lowest recorded reading, as far as data goes. However, the reaction of USD could be somewhat positive, as the US dollar tends to act as a safe haven lately, in the times of hardship.
UK is set to deliver its manufacturing figure as well for the month of April. The expectation is for a record drop as well, which is believed to have fallen from the previous 47.8 to 32.8. If so, this will be the lowest it has been since December 2008, where the reading came out at 34.4. Yesterday, the FTSE 100 closed off the month of April with quite a significant slide, falling around 3.50%.
One of the main big economic releases from the old continent yesterday was the ECB’s interest rate decision, followed by Christine Lagarde’s press conference 45 minutes later. The Governing Council decided on some of the following monetary policy moves, quote:
· The conditions on the targeted longer-term refinancing operations (TLTRO III) have been further eased. The ECB is reducing the interest rate on TLTRO III operation for the period between June 2020 and June 2021 by 50 bps below the average interest rate on the Eurosystem’s main refinancing operations prevailing over the same period.
· A new series of non-targeted pandemic emergency longer-term refinancing operations (PELTROs) will be conducted to support liquidity conditions in the euro area financial system and contribute to preserving the smooth functioning of money markets by providing an effective liquidity backstop.
· Net purchases under the asset purchase programme (APP) will continue at a monthly pace of €20 billion, together with the purchases under the additional €120 billion temporary envelope until the end of the year.
These are some of the measures the ECB will continue undertaking, in order to support the eurozone. These measures will be in place until the ECB sees inflation stabilising and rising closer to, but staying below +2.0%. EUR traders took a liking of the announcement from the ECB and pushed the common currency higher. EUR gained against most of its major counterparts, except the Swiss franc. The common currency remained virtually unchanged against GBP and SEK.
EUR/AUD managed to find strong support near the 1.6539 hurdle yesterday, from which the pair reversed sharply to the upside. Such a move led to a break of a short-term tentative downside resistance line taken from the high of March 23rd. This morning, the rate is testing its key resistance barrier between the 1.6978 and 1.7017 levels, marked by the high of April 24th and the low of April 20th. For now, we will take a cautiously-bullish approach and wait for a break of that resistance area, in order to get comfortable with higher areas.
A push above the 1.7017 area would confirm a forthcoming higher high and more buyers may join in. This could lead the pair to the next potential resistance zone, at 1.7200, which is the high of April 23rd and also coincides with the 200 EMA on the 4-hour chart. Initially, EUR/AUD could stall there for a bit, however, if the buyers are feeling confident still, a break of that territory might lift the rate to the 1.7350 level, marked by the high of April 16th.
Alternatively, if the pair drifts back below the aforementioned downside line and falls below the 1.6680 hurdle, which is the high of April 29th, this could spook the bulls from the field temporarily. EUR/AUD may slide to the low of this week, at 1.6539, a break of which might open the door for a move to the 1.6350 level. That level marks an intraday swing low of February 21st.
After falling below the lower bound of the small range, between the 106.92 and 108.08 levels, where USD/JPY was trading in from mid till late April, the pair managed to move back inside that range again. The rate pushed higher, but got held by a short-term tentative downside resistance line taken from the high of April 4th. Given that USD/JPY is back inside the range, but remains below that downside line, we will stay neutral, at least for now.
If the rate suddenly falls below the 106.92 hurdle again, which is the lower bound of the previously-discussed range, this might make the bulls worry again. However, to get comfortable with deeper extensions to the downside, we would like to see a drop below Wednesday’s low, at 106.35. This would confirm a forthcoming lower low and could send the pair to the 106.08 zone, a break of which may set the stage for a move to the 105.14 level, marked by the low of March 16th.
In order for us to get comfortable with higher areas, we would like to see USD/JPY pushing not only through the aforementioned downside line, but also above 108.08 barrier, which is the upper bound of the previously-mentioned range. Such a move would confirm a forthcoming higher high and may attract a few extra buyers. The rate might then drift to the 108.58 obstacle, a break of which could clear the way to the 109.38 level, marked by the highest point of April.
Most of the European bourses will be closed today, due to Labour Day. UK and the US will be open as usual. Developments around the coronavirus and the further testing of the anti-virus will remain in focus. Any positivity coming out on that front, could encourage investors to stick to risk-on trading, at least for a while more. However, we understand that the current uprise in the equity markets could be seen as a temporary correction before another leg of selling, as it is believed that the amount of infections and deaths might hit the world with a second wave.
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