The past few sessions has begun to see a more constructive environment for risk emerging once more. The question is that after weeks of see-sawing sentiment, can this move be sustained? There is still a drip feed of positive economic data for June which has helped to counter the concerns of rising COVID-19 infection rates for the US and rolling back of economy re-openings. However, it will be interesting to see whether there is a tipping point back lower once more, and it will be in the July data that this may start to become an issue once more. This edge towards risk improvement has been backed by the FOMC minutes last night, which talked favourably of yield curve control. An outcome based forward guidance (monitoring the level of inflation) was also on balance favoured. This lends a ongoing dovish bias to monetary policy from the Fed. Treasury yields and the dollar are being weighed down in the wake of this, whilst equities are ticking positively. Looking forward today, attention quickly turns to the Nonfarm Payrolls report, this month brought forward to Thursday, due to the Independence Day public holiday tomorrow. Payrolls are expected to show a record gain of +3 million jobs in June, which would beat the existing record of +2.5 million jobs added in May. This remains a fraction of the 20.6 million jobs lost in April and it will be interesting to see what sort of reaction the market gives, considering the developments in more than 12 states of slowing or even reversing re-openings of their lockdowns.
Wall Street closed positively for a third straight session, with the S&P 500 higher by +0.5% at 3115. Futures are showing a continuation of this positive move today with E-mini S&Ps +0.4%. Asian markets have been broadly positive, with the Nikkei +0.1% and Shanghai Composite +2.2%. European markets look set fair too, with FTSE futures +1.0% and DAX futures +1.3%. In forex, the risk positive bias is also present with the underperformance of JPY, whilst EUR, GBP and NZD all gain ground. Commodities show the move higher on oil continues to creep through, whilst the precious metals have had their breakouts dragged back with gold and silver a shade lower.
With it being a public holiday in lieu of Independence Day in the US tomorrow, the payrolls report is on a Thursday this month. The US Employment Situation is at 1330BST. Headline Nonfarm Payrolls are expected to show another +3.000m jobs added back into the US economy in June. This comes after the gargantuan surprise of +2.509m jobs were added in May. The potential for a sizeable revision will be high and w3%ll be a key factor in how the market assesses the overall composition of the report. Unemployment is expected to be reduced to 12.3% (from 13.3% in May). Average Hourly Earnings remain a curious statistical issue, with a decline of -0.7% expected on the month, to 5.3% year on year (down from 6.7% in May). WE are also keeping an eye out for the Weekly Jobless Claims at 1330BST which are expected to show another 1.355m claims in the past week (1.480m prior). US Factory Orders for May are expected to show a rebound of +8.9% on the month (although still not recovering the -13.0% of April).
Chart of the Day – AUD/JPY
Is risk appetite beginning to improve again? Aussie/Yen is often seen as a key gauge of risk and is just beginning to pick up after a period of correction from early June. Having stabilised a move back from 76.75 around 72.50/72.75, the major cross has been taking its time in finding buyers once more. After a couple of weeks of consolidation, something looks to be brewing for the bulls. With the underpinning of support from a three month uptrend, the magnitude of positive candles in the past week or so are beginning to pull the market higher once more. Candles this week have been encouraging and show an appetite to buy into intraday weakness now, on a succession of higher daily lows. Pressure is mounting on the 74.50 pivot area. A close above this resistance would really suggest positive traction is building. The improvement is already coming through, as the Stochastics rise in the wake of a bull cross, and RSI is also looking to move into the 60s. Given the consolidation in recent weeks, it would be wise to see confirmation of an upside break before looking to buy. However, there is now decent support building around 73.20/73.30, around where the three month uptrend comes in today. A move above 75.05 would re-engage upside traction for a retest of 76.75.
If one session could paint a picture of the medium term outlook, then yesterday could be it. An initial move lower, before swinging back decisively higher and just tailing off into the close. A small positive candlestick body is the result, with long shadows higher and lower reflects a battle for control throughout the session, where both sides have had a go, but neither are strong enough to grasp control, yet. Yesterday’s candle has aborted what threatened to be a mild negative bias within what we see as a growing consolidation range above the key $1.1145 breakout. The consolidation support at $1.1165/$1.1190 has held another test and is clearly seen as an area worth defending for the bulls. Near term weakness within this consolidation remains a chance to buy. Momentum indicators beginning to turn back higher, as Stochastics starting to advance once more and more importantly, daily RSI continues to hold above 50. Breaking a mini downtrend and tick higher early today leaves the pair almost bang in the middle of a 185 pip range between support at $1.1165 and resistance at $1.1350. Ahead of Nonfarm Payrolls, the market sits in neutral configuration, but we remain buyers into weakness.