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Trading on Friday was dominated by the reaction to US non-farm payroll data. The weaker headline number played into the FED’s patient stance, and generated a rally in risk assets as well as weakness in the US Dollar. Gold and Crude recovered ground.
This week will likely be dominated by the continued reaction to non-farm payrolls ahead of the Bank of Canada and ECB decisions. US CPI will be the data highlight.
Themes for the Week
- Non-Farm Payrolls: the weak data played into the Fed’s “patient” stance. We may see further risk-on sentiment, and USD weakness although prices are finding a base near the 2018 accumulation zone in the DXY.
- Bank of Canada: no change is expected and focus will be on any further taper talk, and economic projections.
- ECB: no change is expected, so focus will be on any taper talk and economic projections.
- US CPI: markets are watching inflation in an attempt to understand the odds and timing of a FED taper.
Data in the Week Ahead:
• Bank of Canada decision (Wed)
• ECB decision (Thur)
• US CPI (Thur)
• G7 meeting (Fri/Sat)
Correlation Report:
Comment: Correlations continue to show an influence of US Dollar movements, as well as strong connections amongst European equities.
Technical Comment
Major FX pairs posted little changed closes for the 2nd week in a row into Friday’s close, highlighting indecision. As such, short-term trading prevails on the major pairs, and clearer directional indications are found on the crosses.
Weekly Technical View:
SP500
After posting consecutive little changed closes at the daily level, volatility increased into Friday and prices posted a bullish engulfing at the daily level, maintaining the bullish stance for the coming week. Initial resistance as at the May 9 low at 4235, then all-time highs at 4246. Support is at Friday’s Marabuzo at 4209 and then at Friday’s Open at 4189. Only a daily close below 4168 would negate the bullish stance.
GOLD
Following a bearish divergence in momentum at the daily level, prices corrected towards the 23.6% retracement of the Mar/Jun rally. Buyers returned however, prices closing the week little changed. However, Friday’s recovery suggests further upside remains possible. Our preferred bias is for further gains this week and only a daily close below Friday’s low would negate the bullish stance. Support is at Friday’s Open (1870) then the 23.6% retracement at 1861. Resistance is the 1 Jun close at 1899, then the 1Jun top at 1916.
EURUSD
Prices posted the 2nd little changed close at the weekly level, with sellers continuing to defend 1.2250/60. As such, signals are not strong for the coming week but on balance a slightly negative bias remains, at least until prices post a daily close above 1.2242 risking new cycle highs. Resistance remains at Thursday’s Marabuzo at 1.2170, then the Jun 2 close at 1.2209 and finally prior highs at 1.2256/66. Support is at Friday’s low/1.2100, then the 13 May open at 1.2077 before the May 13 1.2053 low.
USDJPY
Prices postes a higher weekly high & low last week, but sellers returned on Friday to post a bearish engulfing at the daily level, with the week closing on a bearish note. As such, initial signals are bearish for this week, with resistance at the Apr 9th high at 109.98, then last week’s top at 110.33. Support is found at last week’s low 109.32, then 109.00 and prior week lows at 108.60.
GBPUSD
Prices posted the 2nd little changed close in a row at the weekly level, highlighting indecision. Prices remain contained within the broad 1.4100/1.4220 range. As such, signals continue to point to range trading conditions with support at 1.4100/Friday’s open and resistance at 1.4200/Friday’s top, then cycle highs at 1.4248. Only a daily close beyond the range boundaries would change the technical picture.
AUDUSD
Indecisive conditions remain on AUDUSD as prices posted a false break of recent range lows as Thursday’s bearish breakout was followed by an equally bullish reaction on Friday. As such, directional signals are not strong. Immediate signals suggest further upside this week, perhaps with a test of the inside range boundary around .7800. Key resistance levels are .7773, .7796 and .7814. Support is back at Thursday’s low/Apr 13 close at .7642.
USDCAD
Prices posted the 2nd little changed close at the weekly level, highlighting indecision and weak trend signals. Focus now shifts to the volatility contraction highlighted by the tight Bollinger Bands. As such, a neutral stance is advocated until prices post a daily close beyond 1.2142 or 1.2006.
GBPJPY
Last week’s bearish close highlights a potential bearish divergence at the weekly level, and a deeper correction may be commencing. Hence, signals for this week point lower and only a close above 156.07 would invalidate this bias. Support is at the May 26 Close at 154.12, then the May 19 low at 153.53. Resistance is at the 31 May close at 155.77 and then the 27 May top.
EURJPY
After 6 consecutive little changed closes at the daily level from close to 134.00, prices declined on Friday to post the 1st bearish weekly close in the past 7 weeks from extended conditions. As such, signals for this week point to further losses and a break of intial support at 133.24 would bring into view the May 23 Open at 132.68 and then the May 24 Low at 132.51. Resistance is at the 2/£ June close at 133.79 and then the 1 Jun top at 1324.13.
BITCOIN
With prices posting 2 consecutive lower daily highs & lows, momentum is currently bearish. However, prices posted the 2nd little changed close at the weekly level in a row, highlighting rangebound conditions and indecisive sentiment. As such, a neutral stance for this week is preferred between 33270 and 40000. Support at 34700/50% of the 2020 rally continues to hold. Initial resistance areas are the Jun 3 open at 37500 and 40k. A daily close beyond 33270 or 40K is required to establish next directional signals.