No support for the U.S. dollar

Hi Everyone,

The first revised U.S. Q1 GDP data was published last week, confirming that the economy expanded 6.4% on an annualized basis. The one major correction made was to the consumer durable goods orders that expanded in Q1 at an astounding rate of 48.7%, versus the initial data of 41%. Some downward adjustments were made to non-residential durables, business equipment, and most notably to exports. The latter was revised to -2.9% from previous -1.1%, confirming that U.S. trading partners have been importing less, partially due to slower economic recovery, and somewhat stronger dollar in the first quarter.

The bolstering effect of stimulus from the government is obvious when reading the GDP data – real disposable incomes were up 62% at an annual rate but stripping out government transfers to individuals, this print would have been flat and unlikely that we would have seen such an explosion in consumer durable spending. This begs the question – where should the growth in coming quarters stem from? As we know, the direct stimulus payments are rolling over with some states ending the programs before the September deadline. With less free cash on their hand, are the consumers going to continue their spending spree as we have seen earlier this year? It seems unlikely that the same money will be spent on things but in all likelihood, we are going to see an increase in spending on services as the U.S. is opening up for the summer.

September can’t come soon enough for market observers – a number of catalysts for labor markets are becoming inevitable just after summer. As we know, non-farm payroll data was a huge miss last month when only 266,000 jobs were added whilst the consensus expected around 1 million new jobs. After some analysis it seems that the problem seems to be in labor supply, and specifically – an artificial lack of labor supply. It’s artificial since in reality there are enough people for the roles that are currently vacant – there are still around 10 million people who are unemployed in the U.S. and around 16 million who are at least on one benefit program.

However, the reasons why there are 8 million openings according to JOLTS data, despite millions of unemployed people, are largely due to a) benefit programs b) early retirements c) concerns about health and workplace safety, and d) lack of childcare as schools have been closed. With benefit programs ending in September and schools re-opening at the back of aggressive vaccination program, two of these factors are expected to be mitigated. Even with the services industry opening up over the summer, the labor market is likely to remain weak, potentially pushing the dollar further down and equities markets up as the investors know – the Fed cares only about the labor market at this point. Keep an eye on the non-farm payroll data this coming Friday as we expect another surprise.

The dollar, measured as DXY, has been moving sideways, consolidating near US$ 90.1 levels since mid May. There could be an attempt to re-test the 90.45 resistance level once again, similar to what we saw last Friday when Fed’s preferred inflation measure, Personal Consumption Expenditures Index, exploded to the upside. But technicals are all suggesting further weakness in the Greenback for the upcoming days and weeks.

S&P 500 closed last week up 1.16% to 4,204.12, while Nasdaq-100 rose 2.05% to 13,686.51 points. Russell 2000, representing U.S. small and medium companies, was gained 2.42%. The dollar index DXY was largely flat, gaining 0.03%, continuing its rangebound move. Gold closed at 6-month high of 1,903.45, up 1.18% last week. Oil rose 4.31% to US$ 66.60, supported by strong U.S. economic data.

Have a great trading week ahead!

Trading on margin products involves a high level of risk

In The Spotlight

DateCurrencyEventPrevious Consensus
MondayCNYNon-Manufacturing PMI – May54.952.7
MondayCNYNBS Manufacturing PMI – May51.151.1
MondayEURPreliminary German CPI (MoM) – May0.7%0.3%
TuesdayUSDOPEC Meetings
TuesdayAUDRBA Interest Rate Decision and Rate Statement0.1%0.1%
TuesdayEURPreliminary Euro Area Core CPI (YoY) – May0.7%0.9%
TuesdayCADAnnualized GDP (QoQ) – Q19.6%7.0%
TuesdayUSDISM Manufacturing PMI – May60.761.2
WednesdayAUDGBP (QoQ) – Q13.1%1.1%
ThursdayUSDADP Employment change742*675*
ThursdayUSDISM Services PMI – May62.763.0
FridayUSDFed’s Chair Powell Speech
FridayUSDNon-Farm Payrolls- May266*670*

*In USD thousands

• German and Euro Area Consumer Price Index
CPI, or inflation measures the rise in consumer prices in an economy over a certain period of time. Higher inflation means that consumer prices have grown compared to the previous period. Higher than expected rate may be both positive or negative for currency as the market does not like inflation expectations too far off from consensus. Generally, both high and negative inflation are bearish for currency, while positive and low inflation, in line with the consensus, is bullish

• Canada and Australia Gross Domestic Product
GDP data shows the monetary value of all the goods and services produced in any economy. A negative number indicates a contraction of economic activity while a positive number shows an expansion. A better than expected GDP growth is generally positive for a currency, whilst a print below expectations tends to be negative.

Market Sentiment

EURUSD seems to be consolidating near current 1.22000 levels with momentum indicators signaling bullish trend on the daily chart. Price action seems to be in the neutral zone with RSI and Stochastic both moving sideways, respectively near 56 and 68 levels. Bullish momentum is strong as ADX is 30 and DMI+ of 22 dominates DMI-, confirming that further move higher seems likely. Resistance has formed near 1.22615 which is near last week’s area of interest, and 1.22845 that is near upper Bollinger Band resistance level. Support levels are near 1.21700 – another area of interest level from previous sessions, but also near 1.21480 that is near 21-day exponential moving average (EMA) and lower support of regression channel.

Resistance: 1.22615
Support: 1.21700

GBPUSD continues consolidating near swing highs of 1.41900, finding support near 8-day EMA. Momentum indicators signal further bullish trend for upcoming days and weeks, whilst price action is flirting with overbought levels and momentum seems weak. Stochastic print of 77 signals that price is near the upper part of the trading range, likely to stop a further jump higher. But all indicators support a move higher with resistance levels near recent highs of 1.42225 and 1.42920. Support levels are near 1.41570 which is the 8-day EMA, and 1.40870 – 21-day EMA but also Fibonacci retracement and lower regression band support level.

Resistance: 1.42225
Support: 1.41570

NZDUSD is in a bullish trend on the daily chart with price finding support near 8-day exponential moving average (EMA). The pair has lost some of the momentum with little energy in the momentum but there are no clear signals that a pullback may be due. Momentum indicators are stacked and confirming bullish trend with resistance levels near 0.72925 and 0.73060 – near swing highs and upper Bollinger Band. Support levels are near 0.72300 that is at Fibonacci retracement level, and 0.72130 – near 21-day EMA.

Resistance: 0.72925
Support: 0.72300

XAUUSD seems to have broken decisively higher with price trending higher and occasionally testing upper Bollinger Band resistance level. Price has found support near 8-day EMA, while ST momentum indicators signal further upward trend. 200-day simple moving average is now below price but still above 50-day SMA. Price is currently overbought based on momentum oscillators but ADX of 50 signals very strong energy, allowing the price to even move further from current levels. At some point consolidation and sideways action seems likely. Resistance levels are near 1,913.22 and 1,928.68 – respectively near swing highs and upper Bollinger Band level. Support is near 1,897.20 and 1,890.06 which are regression channel mid-line and 8-day EMA support.

Resistance: 1,913.22
Support: 1,897.20

Kaia Parv, CFA, is an experienced Portfolio and Investment Manager with exposure to both public and private markets. Before joining FXPRIMUS, Kaia was a Senior Investment Associate at EFA Group and a Vice President in Bank of America Merrill Lynch.

Any opinions, news, research, analyses, prices or other information contained here are provided as general market commentary and do not constitute investment advice. FXPRIMUS does not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.

Risk Warning: Trading on margin products involves a high level of risk , which may result in the loss of all invested capital. Show Less

risk Show More

Get Started

Risk Warning: Trading on margin products involves a high level of risk , which may result in the loss of all invested capital.

Get Started