USD Strengthens Ahead Of US Employment Report

Jun 04 21, 10:46 GMT

The USD strengthened against a number of its counterparts yesterday as stronger than expected employment data for May and a better-than-expected reading for May’s ISM nonmanufacturing PMI boosted the appetite of the bulls. It’s characteristic that that the ADP employment figure rose and almost reached 1 million jobs instead of dropping as expected, while the weekly initial jobless claims figure dropped to its lowest since the pandemic began breaking the psychological barrier of 400k. Today we see the market’s attention turning to the release of the US employment report with its NFP figure and all indicators are expected to improve, thus signaling that the US employment market to be tightening. We highlight the possibility that the market’s expectations may have risen after the recent data release and should the actual rates and figures of the US employment report indicators not reach their targets or surpass them the USD may weaken asymmetrically. Besides the US employment data, we also highlight the possibility of Fed Chairman Powell making some comments about the Fed’s monetary policy, which may also move the markets.

The USD index rallied yesterday, breaking the 90.25 (S1) resistance line now turned to support and started aiming for the 90.75 (R1) resistance level. As the index broke the upper boundary of its past sideways motion we switch our sideways bias in favour of a bullish outlook. It should be noted though that the RSI indicator below our 4-hour chart is testing the reading of 70 also providing some signs that the bulls dominate the pair’s direction. If the bulls maintain the control, we may see the USD Index breaking the 90.75 (R1) line and aim for the 91.30 (R2) hurdle which capped the upward motion of the index on the early days of May. Should the bears take over, we may see the index breaking the 90.25 (S1) line and aim for the 89.65 (S2) level.

CAD traders turn their attention to Canada’s employment data

CAD retreated against the USD yesterday, given that the greenback enjoyed substantial support across the board, yet market reactions for the Looney were mixed in other crosses. Focus of CAD traders is expected to be on the release of the Canadian employment data for May, which is to be simultaneous with the US employment report of the same month. Data, do not seem to be satisfactory, as despite the improvement expected at the employment change figure for May, the unemployment rate is forecasted to rise, increasing worries for the Canadian employment market somewhat. Nevertheless, it should be noted that BoC is still expected to taper it QE program next quarter and oil prices are at rather high levels, both providing support for the Loonie moderating any possible bearish reactions.

USD/CAD rose yesterday breaking the 1.2060 (S1) resistance line, now turned to support and continued higher aiming for the 1.2140 (R1) resistance level. As the pair in its upward motion broke the downward trendline characterising its movement since the 27th of May, we switch our bearish outlook in favour of a sideways movement initially, yet we would like to highlight the upside risk for the pair. The RSI indicator below our 4-hour chart is above the reading of 50, aiming for the reading of 70 and tends to underscore the presence of the bulls for the pair. At the same time, we would like to note though that the pair’s price action has reached the upper Bollinger band which in turn may imply some stabilisation, or even a correction lower. Should the pair find fresh buying orders along its path, we may see it breaking the 1.2140 (R1) line and aim for the 1.2230 (R2) level. On the flip side should a selling interest be displayed by the market, we may see the pair reversing course and breaking the 1.2060 (S1) support level, aiming for the 1.1995 (S2) barrier.

Other economic highlights today and the following Asian session:

Today during the European session, we note UK’s construction PMI for May and Eurozone’s retail sales for April. In the American session besides the US and Canadian employment data for May, we also note Canada’s Ivey PMI for May and the weekly US Baker Hughes oil rig count.

USD Index H4 Chart