Date Thursday May 6, 2021
Drivers
Equities were mostly higher yesterday, on cautious optimism over company earnings reports, with a clear divergence between the Dow Jones Index and the Nasdaq Comp as investors and money managers rotate away from growth and technology stocks and buy value driven and Dow components, as prospects for rising rates increase.

FX staying range bound and choppy. Risk sentiment remains strong in the face of any short-term negative headline shocks. The economic data globally is strong despite some tighter restrictions in parts of the world, but traders are beginning to look toward Friday’s jobs report for April. Economists expect the data to show employers hired 988k workers.

GBP/USD continues to consolidate around the 1.39 area, as traders await the BoE Monetary Policy Report due later today. We are looking for a move above 1.3920 to confirm our bullish view.

AUD/USD been chopping around in a range. We are now watching 0.7820 on the topside and 0.7700 on the downside. There are certainly downside risks for AUD from any broad risk aversion, Covid outbreaks, or China retaliation but as industrial metals continue to charge higher it may continue to grind higher unless something more meaningfully changes.

The retaliation from China that we had been waiting for after Australia cancelled a Belt and Road initiative deal a couple of weeks ago came today. China NDRC, an economic planning agency, announced the indefinite suspension of all activities under China-Australia Strategic Economic Dialogue. There is no clear immediate implications for Australia from this but the market is concerned of any further action. Australia’s exports have held strong this year despite tensions although this is purely driven by iron ore. Other exports to China have fallen 29%. If China enacts more tariffs as punishments or targets iron ore imports then this could have a large impact on the Australian economy (luckily for Australia, supply disruptions in Brazil means China has no alternative). Iron Ore is continuing its march higher so overall it seems that Australia-China trade will continue to increase despite these tensions.

Market Updates

EURUSD Services PMI rose yesterday from 49.6 to 50.5 indicating the fastest expansion since July 2020 and the 2nd best in nearly 3 years, with Germany leading the way in overall growth. But that wasn’t enough to lift a weakening Euro. German factory orders and Eurozone retail sales figures, in addition to US jobless claims later in the session, will have an impact on the single European currency today. Technically speaking, EURUSD remains on a downtrend printing lower lows, with a breach of the 1.1985 support level to trigger an acceleration to the 200-period SMA around 1.1950 / 1.1924.

GBPUSDThe British Pound continues to consolidate around the 1.39 area, as traders await the BoE Monetary Policy Report due later today, and the US NFP number tomorrow, with technical indicators still favoring a move higher in the short-term.

USDJPYUSDJPY failed to retest the ¥109.65 resistance area as the pair continues to consolidate and selling pressure seems to be building up, with the US jobs number coming out on Friday to otherwise trigger some price action in this quiet market. Technically, the forex pair remains supported by the 200-period SMA around ¥109.05.

FTSE 100Strong momentum and good corporate earnings pushed the FTSE100 index above the 7030 resistance level, ahead of the BoE’s latest monetary policy decision to be released at midday today. Focus will be on whether we could start to hear some taper talk or not. Regional elections across the UK, especially in Scotland, will also be in the spotlight.

DOW JONESThe Dow Jones Industrial Average hit a new record yesterday as investors and money managers rotate away from growth and technology stocks and buy value stocks and Dow components, as prospects for rising rates increase. The Labor Department will publish April’s employment report on Friday.

DAX 30The DAX30 climbed back all the way to the 200-period moving average, as data showed better-than-expected overall growth in the Eurozone, particularly in Germany. Moreover, earlier this morning, German Factory Orders increased more than expected suggesting that the manufacturing sector in Europe’s top economies are seeing an impressive post-pandemic recovery, with a sustained move above 15200 to signal more upside potential.

GOLDGold hit our support target at $1773 before bouncing back and ending yesterday’s session in the green, as the five-year breakeven rate jumped to its highest since 2008 as investors look ahead towards today’s Initial Jobless Claims data. With the greenback kicking off the day on the backside and as inflation risks remain the main driver for the yellow metal, an hourly close above $1796 will open the door to further upside with $1808 as the next resistance target.

USOILAn uneven recovery in global demand and Covid-19 cases surging dramatically in India weighed down on WTI Crude oil prices, while a drawdown in US inventories of -7.99Mb vs. consensus of -2.436Mb provided some support, holding the black gold above $65. Technically, an hourly close below $65.50 will favor further downside with $65 and $64.35 as next support targets.

 

 

Rony Nehme

Rony Nehme

Chief Market Analyst at SquaredFinancial

Rony has over twenty years of experience in financial planning and professional proprietary trading in the equity and currency markets. Prior to joining SquaredFinancial, Rony educated and coached numerous traders helping them find their edge and arming them with proven trading methodologies to successfully battle the markets. Rony obtained a B.S. in Finance from Concordia University in Montreal, and his professional designations include Certified Financial Planner CFP® obtained from the Canadian Securities Institute.

 

Disclaimer: This information is only for educational purposes and is not an investment recommendation. The information here has been created by SquaredFinancial. All examples and analysis used herein are of the personal opinions of SquaredFinancial. All examples and analysis are intended for these purposes and should not be considered as specific investment advice. The risk of loss in trading securities, options, futures, and forex can be substantial. Customers must consider all relevant risk factors including their own personal financial situation before trading.