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by Charalambos Pissouros

Vaccine Headlines Lift Sentiment, NFPs Take Center Stage

Although major EU indices traded negative yesterday, both the S&P and Nasdaq gained following reports that a coronavirus vaccine was found to be tolerated in early-stage human trials. As for today, market participants may lock their gaze on the US employment report for June. A decent report may allow equities to continue gaining and could add pressure on safe havens.

Investor Morale Improves Ahead of the US Jobs Data

The dollar traded lower against all but one of the other G10 currencies on Wednesday and during the Asian morning Thursday. It underperformed the most versus NOK, GBP, and NZD, while it lost the least ground versus CHF, JPY, and AUD. The greenback eked out some gains only against CAD.

USD performance G10 currencies

The weakening of the dollar and the other safe havens, combined with the strengthening of the Kiwi, suggests that risk appetite continued to improve. However, the fact that the Aussie was among the currencies which gained the least versus the greenback points otherwise. Thus, in order to clear things up, we prefer to turn our gaze to the equity world. There, major EU indices closed in negative territory, but during the US session, sentiment improved with both the S&P 500 and Nasdaq gaining 0.50% and 0.95% respectively. Dow Jones finished 0.30% lower. The relatively sanguine investor morale rolled over into the Asian session today as well. Although Japan’s Nikkei traded virtually unchanged, China’s Shanghai Composite and Hong Kong’s Hang Seng gained 1.52% and 1.62% respectively.

Major global stock indices performance

The reasoning behind the slide in the EU indices may have been comments by German Chancellor Angela Merkel, who said that EU members are still far apart on agreeing over a recovery fund. She also said that the EU “must be prepared for Brexit talks to end in failure”, though the pound shrugged off those comments. Sentiment improved during the US session following reports that a coronavirus vaccine developed by Pfizer Inc. and German biotech firm BioNTech found to be tolerated in early-stage human trials. Upbeat US data may have also helped the rebound in equity markets. Although the ADP report revealed that the private sector gained 2.37mn jobs in June, less than the 3.0mn forecast, May’s print was revised up to 3.07mn from -2.76mn, while the ISM manufacturing PMI returned into expansionary territory for the first time after three months of contraction. Specifically, the index surged to 52.6 from 43.1.

As for today, market participants may lock their gaze on the official US employment report for June. The reason we don’t get the report on Friday is because US markets will be closed in celebration of the Independence Day. Nonfarm payrolls are expected to have increased 3.00mn after rising 2.51mn in May, while the unemployment rate is expected to have declined to 12.3% from 13.3%. Average hourly earnings are forecast to have declined 0.7% mom after falling 1.0%, something that, barring any major deviations to the prior month prints, will drive the yoy rate down to 5.3% from 6.7%.

US unemployment rate

Such a report would be an encouraging development as it would show that the US economy is on the road to recovery, despite the nation’s infected cases from the coronavirus keep increasing at a fast pace. Yesterday, the minutes from the latest FOMC meeting revealed that policymakers agreed to use all the tools available in order to support a recovery from the recession caused by the coronavirus spreading. Thus, combined with the Fed’s willingness to do more in order to stimulated the US economy, an improving labor market could prove positive for the stock market, and oddly, negative for the US dollar, which has been acting as a safe haven following the coronavirus outbreak.

Nasdaq 100 – Technical Outlook

The Nasdaq 100 index hit a new record high yesterday, at around 10322, overcoming the previous one, at around 10307. This morning, the cash index is trading slightly below that new all-time high. The index remains above a short-term upside support line taken from the low of April 2nd. Even if the price declines a bit lower, as long as it stays above that upside line, the near-term outlook could stay positive, hence why we will stay bullish, for now.

If Nasdaq 100 gets a boost from the buyers again and climbs above the 10322 barrier, this would not only confirm a forthcoming higher high, but also a new all-time high. Because the area there would be an uncharted one, we can only speculate about the next possible resistance area, one of which might be the psychological 10500 level. Certainly, if that fails to withstand the bullish pressure, its break could lead to even higher areas, which have not been tested yet.

On the other hand, in order to examine the downside scenario, we would like to wait for a violation of the aforementioned upside line and then a price-drop below the 9950 zone, marked by the lows of June 24th and 30th. Nasdaq 100 could then get picked up by more sellers, who may send it to the low of last week, at 9742, a break of which might open the door for a move further down. The next possible support area may be seen near the 9496 level, marked by the low of June 12th.

Nasdaq 100 cash index daily chart technical analysis

NZD/USD – Technical Outlook

After hitting the 0.6584 barrier in the beginning of June, NZD/USD retraced somewhat lower, however from around mid-June the pair started moving sideways, roughly between the 0.6381 and 0.6533 levels. After testing the area near the 0.6381 hurdle, the rate rebounded and started moving north again, while balancing above a short-term upside support line taken from the low of May 15th. For now, it seems that the pair is willing to move further up, however, we will take a somewhat bullish approach, because it would need to overcome the 0.6533 barrier first, in order to continue with its journey north.

If the rate continues to move up, but struggles to overcome the aforementioned 0.6533 zone, NZD/USD could correct slightly lower again. That said, if the pair manages to remain above the previously mentioned upside line, the bulls may take charge again. If this time the 0.6533 barrier surrenders and breaks, this would confirm a forthcoming higher high and might clear the path towards the 0.6584 level, marked by the highest point of June.

Alternatively, if the rate breaks below the aforementioned upside line and falls below the 0.6381 hurdle, marked by the lows of June 15th, 21st and 30th, that may spook the bulls from the field, as such a move would confirm a lower low. NZD/USD could start drifting further south towards the 0.6307 obstacle, a break of which may set the stage for a move to the 0.6262 level, marked by the low of June 2nd.

NZD/USD 4-hour chart technical analysis

As for the Rest of Today’s Events

Eurozone’s PPI for May, the US initial jobless claims for last week, and Canada’s trade balance for May are coming out. Eurozone’s PPI rate is expected to have declined further into the negative territory, to -4.8% yoy from -4.5%, while the US initial jobless claims are forecast to have slowed to 1.36mn from 1.48mn the week before. Canada’s trade deficit is anticipated to have narrowed to CAD 2.50bn from 3.25bn.

Tonight, during the Asian morning Friday, Australia’s retail sales for May and China’s Caixin services PMI for June are coming out. Australia’s retail sales are expected to have rebounded 16.3% mom after tumbling 17.7% in April, while no forecast is available for China’s Caixin index.

As for the speakers, we have three on today’s agenda: ECB Executive Board members Yves Mersch and Isabel Schnabel, as well as Deutsche Bundesbank Executive Board member Joachim Wuermeling.

Disclaimer:

The content we produce does not constitute investment advice or investment recommendation (should not be considered as such) and does not in any way constitute an invitation to acquire any financial instrument or product. The Group of Companies of JFD, its affiliates, agents, directors, officers or employees are not liable for any damages that may be caused by individual comments or statements by JFD analysts 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 investment decisions. Accordingly, you should seek, if you consider appropriate, relevant independent professional advice on the investment considered. The analyses 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 the legal requirements for financial analyses and must therefore be viewed by the reader as marketing information. JFD prohibits the duplication or publication without explicit approval.

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