Stocks Weighed Down By Fed Powell, Yen and Dollar Back in Control

Yen and Dollar are back in control today as Asian markets turned red, following weakness in the US overnight. Fed Chair Jerome Powell’s comments somewhat disappointed investors. Australian Dollar weakens in general after data showed record contraction in employment. Though, Sterling is the worst one as it stays pressured after yesterday’s downside breakout.

Technically, GBP/USD’s break o f 1.2247 support yesterday should indicate completion of recent rebound from 1.1409. Further fall should be seen to retest this low. GBP/JPY also resumed the fall from 135.74 by taking out 130.64 temporary low. The development reaffirms the case that corrective rise from 123.94 has completed. Deeper decline should be seen to retest this low too. Despite today’s weakness, AUD/USD is still staying in range of 0.6372/6569. Near term reversal is building up with bearish divergence condition in 4 hour MACD. But 0.6372 support needs to be taken out first.

In Asia, Nikkei closed down -1.74%. Hong Kong HSI is down -1.39%. China Shanghai SSE is down -0.78%. Singapore Strait Times is down -1.52%. Japan 10-year JGB yield is down -0.0032 at -0.004. Overnight, DOW dropped -2.17%. S&P 500 dropped -1.75%. NASDAQ dropped -1.55%> 10-year yield dropped -0.029 to 0.649.

Australia jobs dropped -594.3k, unemployment rate rose only to 6.2% as many people left work force

Australia employment dropped -594.3k to 12.4m in April, largest fall on record. That was slightly worse than expectation of -575.0k. Full-time jobs dropped -220.5k to 8.66m, Part times jobs dropped 373.8k to 3.76.

Unemployment rate rose 1.0% to 6.2%, highest since September 2015. That was much better than expectation of 8.3%, But it should be noted that firstly, participation rates dropped sharply by -2.4% to 63.5%. Secondly, monthly hours worked in all jobs dropped -163.9m hours to 1625.8m hours.

“The large drop in employment did not translate into a similar sized rise in the number of unemployed people because around 489,800 people left the labour force”, stated Bjorn Jarvis, head of labour statistics at the ABS. “This means there was a high number of people without a job who didn’t or couldn’t actively look for work or weren’t available for work”.

DOW completed head and shoulder top on Fed Powell’s comments

US stocks closed lower overnight and risk aversion carries on in Asian session. Investors were somewhat disappointed by Fed Chair Jerome Powell’s rejection of negative interest rates. Additionally, he’s rather cautiously pessimistic with his comments on the recovery.

In short, Powell said “the committee’s view on negative rates really has not changed. This is not something that we are looking at.” While “there are fans of the policy” of negative rates, he added, “for now, it’s not something we’re considering”. He emphasized “we have a good toolkit and that’s the one that we will be using.”

On the economy, Powell is the trajectory is “highly uncertain and subject to significant downside risks.” “There is a sense that the recovery may come more slowly than we would like, but it will come. And that may mean that it’s necessary for us to do more.”

DOW’s strong break of 23361.16 support suggests that a head and shoulder top has finally completed (ls: 24264.21, h: 24764.77, rs: 24382.09). That came after DOW failed to sustain above 55 day EMA. Deeper fall should now be seen to 38.2% retracement of 18213.65 to 24764.77 at 22262.24.

Reactions from 22262.24 should reveal whether fall from 24764.77 is a pull back. Or it’s reversing whole rebound from 18213.65. Firm break there should at least send DOW to 61.8% retracement at 20716.17, or further for a retest on 18213.65 low.

Fed Daly: Phased reopening by definition translates to slow recovery

San Francisco Fed President Mary Daly said overnight that the phased reopening of economy “by definition translates to a slow recovery as we put toes in the water, see if the virus flares up when we go back to some economic activity.” “If it doesn’t, we can gain some momentum, people will be more confident; but if it does then people are going to be more cautious and that will slow the recovery even further,” she added. “Whichever scenario occurs, this is going to be a slow recovery and not a sharp rebound.” Also, under most scenarios “the economy is going to need more support, in all likelihood.”

Separately, Treasury Secretary Steven Mnuchin said Q2 is expected to be “pretty bad”. But with economy reopened safely, next year “we’ll be back to having a quick economy”. He added that President Donald Trump was open to more fiscal spending. However, “we’re not in a rush to do that this week or next week. We’re going to take our time.”

AUD/USD Daily Report

Daily Pivots: (S1) 0.6423; (P) 0.6473; (R1) 0.6508; More…

Intraday bias in AUD/USD remains neutral at this point as range trading continues. Another rise could be seen through 0.6569 resistance. But considering bearish divergence condition in 4 hour MACD, upside should be limited by 0.6670 key resistance, at least on first attempt. On the downside, break of 0.6372 support should confirm short term reversal and bring deeper fall to 38.2% retracement of 0.5506 to 0.6569 at 0.6163 first.

In the bigger picture, there is no clear sign of trend reversal yet. The larger down trend from 1.1079 (2011 high) is still in favor to extend. 61.8% projection of 1.1079 to 0.6826 from 0.8135 at 0.5507 is already met. Sustained break there will pave the way to 0.4773 (2001 low). On the upside, however, sustained break of 0.6607 will suggest medium term bottoming and turn focus to 0.7031 resistance next.

Economic Indicators Update