FX Commentary – US Dollar Weaker Ahead of NFP

Market Talk

  • The dollar slipped on Friday as investors defied a broader sense of doom around upcoming U.S. employment data that is expected show the worst U.S. unemployment rate in more than 70 years and as U.S. short-term bond yields hit record low with markets starting to price in negative U.S. interest rates for the first time.
  • Investors found reasons to buy riskier currencies with more governments slowly reopening their economies for business and with Nasdaq index less than 6% from its historical high after declining more than 30% during the height of the coronavirus crisis.
  • The Australian dollar traded at $0.6505 after a gain of nearly 1.5% in the previous session after Beijing reported exports rose 3.5% in April on a year earlier, completely confounding expectations of a 15.1% fall and outweighing a 14.2% drop in imports. The surprise stoked speculation that China could recover from its coronavirus lockdown quicker than first thought and support global growth in the process.
  • Sterling recovered from a two-week low as the BOE kept interest rates and quantitative easing unchanged in a rare early morning policy announcement. The central bank has already slashed interest rates to a record low 0.1% and pledged to buy 200 billion pounds ($250 billion) of debt.
  • U.S. jobless claims data on Thursday showed 3.169 million initial unemployment claims for the week ended May 2, more than economists’ forecast of 3 million, and bringing total claims since late March to 33.5 million, or about one in every five workers ahead of NFP data due later tonight which is expected to show a historic hit to the US labour market.

Chart Focus EUR/USD
Key Points

  1. Buy EUR/USD recommendation.
  2. Buy EUR/USD at 1.0830. Stop at 1.0780 and target at 1.0920
  3. Lower US bond yields and negative rate with an increase in risk appetite are likely to weigh on the US dollar
  4. Price movement off a support area with a bullish Engulfing candlestick pattern together with rising Stochastic is a sign of more price upsides.

Fundamental Comments

  1. US short term bond yields hit record low and worries over negative US rates are likely to weigh on the US dollar
  2. An increase in risk appetite and flow into risker currencies is likely to favour the Euro dollar

Technical Comments

  1. Price has moved off a support area with a bullish Engulfing candlestick price pattern
  2. Stochastic is rising from the oversold zone and is hinting of more price upsides

Key Levels

Support 1.08301.07851.0755
Resistance 1.08601.08901.0925

Technical Overview

USD/JPY – For the past 5 days, price has been on a decline, reaching a low of 105.98. Yesterday was the first time in 5 days, that price has a higher closing than the previous day. There was a bullish divergence warning from MACD as well on the 4-hourly chart. Both of these could be sign of possible bottom in price and a possible push up to 106.80 over the next few days. Stochastic is rising but 20EMA is flat. If price is supported at 105.95, we prefer a movement to 106.80.

Support 106.30105.95105.50
Resistance 106.60106.90107.10

AUD/USD – Late last night, we have confirmation of a Double Bottom at 0.6380 when price moved above the neckline at 0.6475. 20EMA is rising and its gradient is steep, hinting of a strong bullish trend. However Stochastic is into the overbought extreme but MACD is still bullish and strong. We are expecting price to continue towards the chart pattern target at 0.6570, which is also near to the previous high. A move below 0.6435 would negate our bullish view.

Support 0.65100.64800.6440
Resistance 0.65450.65700.6605

GBP/USD – A price break of support at 1.2400 on Wednesday sent price to a low of 1.2265. This morning we saw a price recovery back to test the previous support turned into resistance at 1.2400. If price is unable to move above 1.2400, we see a test of 1.2265 again. However a move above would confirm 1.2265 as a low and hint of a movement to 1.2480. Stochastic is rising but MACD is still bearish and below the zero line. Watch the price reaction at 1.2400 for clues to the next direction.

Support 1.23601.23151.2265
Resistance 1.24051.24501.2495

XAU/USD – Price has been consolidating since reaching a high of $1738. It reached a low of $1668 and over the past few days has managed to stay above this low. Yesterday, price broke a 2-week down trend line and has moved to a high of $1721.70. MACD is bullish and is hinting of more upsides. Stochastic is in the overbought extreme but is not moving lower at the moment, hinting of a strong trend. We are expecting this price rally to continue towards $1738 over the next few days.

Support 1712.951704.051695.65
Resistance 1712.401728.501738.60

USD/CAD – Yesterday price reached a high of 1.4171 but was unable to sustain the high ground and formed a Double Top chart pattern. Price has dropped below the neckline of the chart pattern and we are heading back to 1.3845 again over the next few days. Both Stochastic and MACD have a divergence warning when price made the Double Top chart pattern. 20EMA is also moving lower and its gradient is steep, warning of a strong bearish trend.

Support 1.39101.38751.3845
Resistance 1.39451.39701.4005

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