USD Weakens Despite Improved Employment Data

Jun 08 20, 09:25 GMT

The USD weakened against a number of its counterparts despite surprisingly improved US labour data for May, released on Friday. The unemployment rate dropped instead of rising as expected, while the NFP figure was in the positives with +2.5 million startling the markets. Analysts tend to note that the USD’s gains at the release may have been capped as the figures increased expectations for a recovery in the US economy, thus creating safe haven outflows for the greenback. It was characteristic that the USD weakened against the Aussie and the pound yet tended to strengthen against the JPY and the CHF. The markets seem to continue to be focused on signs of an early recovery, despite the ongoing unrest and protests in the US. Despite a number of financial releases expected, traders seem to be eyeing the Fed’s interest rate decision on Wednesday for more clues about a possible US recovery. AUD/USD maintained a sideways motion with little gains, remaining between the 0.6940 (S1) support line and the 0.7025 (R1) resistance line. We maintain our bias for a sideways motion albeit the bulls may be just around the corner. Should the pair find fresh buying orders along its path, we could see it breaking the 0.7025 (R1) resistance line and aim for the 0.7100 (R1) resistance level. In a selling momentum, we could see the pair breaking the 0.6940 (S1) support line and aim for the 0.6840 (S2) support level.

Pound jumps despite lack of Brexit progress

The pound rallied against the USD, the EUR and JPY on Friday despite the fact that negotiations between the EU and the UK did not produce any progress. It was characteristic that EU’s top Brexit negotiator Barnier stated that there has been no significant progress and “we cannot go on like this forever”. On the positive side it should be mentioned that a BoE official stated that the bank is not about to employ negative rates in the near term, an issue that has been weighing on the pound. For the time being the economy of the UK seems to remain in a slump, as the death toll from coronavirus is at very high levels. UK’s PM seems to be seeking a path to a revival of the UK economy while his poll ratings seem to be weakening. GBP/USD rallied yesterday breaking the 1.2645 (S1) resistance line continued its ascent breaking the 0.6650 (S1) resistance line, now turned to support and continued higher to test our 1.2725 (R1) resistance line. We maintain a bullish outlook for the pair as long as it remains above the upward trendline incepted since the 4th of June. It should be noted that the RSI indicator below our 4-hour chart is currently above the reading of 70, underscoring the dominance of the bulls, yet at the same time may be implying that the pair’s long position may be somewhat overcrowded. If the bulls maintain control, GBP/USD could break the 1.2725 (R1) resistance line and aim for the 1.2800 (R2) resistance level. If the bears prevail, the pair could break the prementioned upward trendline, the 1.2645 (S1) support line and aim for the 1.2580 (S2) support level.

Other economic highlights today and early tomorrow

Today we get Germany’s industrial output for April, Eurozone’s Sentix index for June and in the American session, Canada’s house starts for May. During tomorrow’s Asian session, we get Australia’s NAB business confidence indicator for May. Please note that ECB President Lagarde speaks during the American session.

As for the rest of the week

On Tuesday, trade balance for April and Eurozone’s revised GDP rate for Q1 are due out, while OPEC is to have a meeting. On Wednesday, we get Japan’s Corporate goods prices for May Japan’s machinery orders for April, China’s CPI and PPI rates for May, the US CPI rates also for May while traders are to focus on the Fed’s interest rate decision. On Thursday, the US Initial jobless claims figure is to be released, while on Friday, we get UK’s GDP estimate and manufacturing output, both for April, Eurozone’s industrial production for April and the preliminary University of Michigan sentiment for June.

AUD/USD 4 Hour Chart