Daily Market Outlook, June 3, 2020
The US market closed higher overnight even as protests over George Floyd’s death continued to gain traction and risked sparking more civil unrest across the country, not to mention ongoing US-China tension on the external front. Local officials had imposed curfew to curb the nighttime turmoil that involved assets damages while President Trump had threatened military action. Gains were broad-based across all sectors the Dow Jones added 268pts or 1.1% whereas the S&P500 and NASDAQ picked up 0.8% and 0.6% respectively, lifted by the prevailing risk-on sentiment that had also prompted the selling of safe havens. 10Y UST yield rose 3bps to 0.69%, gold price edged lower (-0.7%) to $1727.7/ounce.
Asian equity markets are again higher this morning following gains yesterday in the US and Europe. Positive economic data surprises helped markets to shrug off concerns about domestic tensions in the US and Hong Kong. UK PM Johnson revealed plans to modify the visa system to accommodate Hong Kong citizens if China goes ahead with its national security law.
In China the May Caixin services PMI rose to a higher-than expected 55.5 from 44.4 in April. Final readings for both the Japanese and Australian services PMIs were also revised up to 26.5 (from 25.3) and 26.9 (from 25.5) respectively. Australian Q1 GDP posted a smaller than forecast decline of 0.3%.
Today’s May PMI services releases for the UK and the Eurozone are final updates. The initial readings showed pickups from April lows. However, both stayed well below the 50 that signals a rise in activity so at best they can be seen as tentative signs of stabilisation in the economy at very low levels. The ‘final’ updates will include data from later in the month as lockdowns started to be eased and so may see some modest upward revisions. There will also be first readings for Eurozone countries including Italy and Spain that are not released as ‘flash’ estimates. German unemployment data for May and Eurozone data for April are both expected to show significant rises. However, Eurozone unemployment does not seem to be rising by as much as it has in the US because a number of European governments have introduced job retention schemes.
In the US, the ADP estimate of private sector employment in May will be watched for a preview of Friday’s official labour market report. Another huge monthly fall in employment is expected of 10 million, although that would be less than half of April’s decline. Also in the US the ISM non-manufacturing survey for May will provide a timely update on conditions. It is likely to show a similar path to the already released PMI data, up from April’s low but still below the 50 expansion level. Meanwhile, April factory orders are expected to record a big decline of more than 12% reflecting in particular ongoing weakness in the transport sector.
The Bank of Canada is expected to leave policy unchanged at today’s update. This will be the first meeting for new BoC Governor Tiff Macklem. He is not scheduled to give a press conference on this occasion but the press statement is likely to confirm that the BoC stands ready to supply more support to the economy if necessary.
Today’s Options Expiries for 10AM New York Cut (notable size in bold)
- EURUSD: 1.1135-50 (1.1BLN) 1.1175-80 (1.3BLN), 1.1210-20 (2BLN)
- GBPUSD: 1.2560 (600M)
- USDJPY: 107.50 (1.1BLN), 108.05-10 (700M), 108.50 (500M), 108.70 (355M)
- AUDUSD: 0.6780 (220M), 0.7100 (400M)
Technical & Trade Views
EURUSD Bias: Bullish above 1.10 targeting 1.1235
From a technical and trading perspective, as 1.10 now acts a s support bulls will target a test of the equality objective at 1.1235, which also represents the monthly R1 and weekly R1, from here expect profit taking for another test of 1.10
GBPUSD Bias: Bullish above 1.2475 targeting 1.2650
GBPUSD From a technical and trading perspective, price tested and overcale symmetry swing resistance sighted at 1.2475. As price continues to trade above 1.2475, look for a test of cycle highs at 1.2650 before a potential correction could develop to test bids back to 1.2350
USDJPY Bias: Range trade 1.09 - 1.08
USDJPY From a technical and trading perspective, the topside breach of 108.50 delays downside objectives opening a retest of range resistance above 109, however as supply above 1.09 stems the upside look for a retest of buds back to 1.08
AUDUSD Bias: Bullish above .6900 targeting .7000)
AUDUSD From a technical and trading perspective,sustained price action above .6800 witnessed the grind higher persist opening a test of the psychological bit figure at .7000. From this initial foray above .7000 anticipate profit taking pullback to .6800
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