Daily Market Report: EURUSD, GBPUSD, USDJPY, USDCAD, AUDUSD
Commodity currencies outperform while European currencies lag as yields continue to edge lower
EURUSD: European currencies underperform ahead of Friday’s NFP
Amongst the FX majors, it was European currencies that underperformed, and the euro was no exception to that rule, with its short-term bull trend line getting tested and positive technical bias eroding. However, the US dollar wasn’t that far behind in terms of lagging performance, as ADP’s estimate was below expectations at 102K, ISM services at its lowest since 2017, factory orders contracting again, and a trade deficit that worsened. The dip in long-term rates on growth worries has taken future Fed rate cut probabilities higher, and tomorrow’s US Non-Farm Payrolls report will be crucial in affirming what has been bearish data. It’s expected to show a more modest 164K after last month’s disappointing 75K.
GBPUSD: Lagging against the majors as price homes in on its short-term support level
The pound lagged the most amongst the FX majors yesterday, but with the US dollar also in relative retreat, the losses were minimal and retracing off the lows, as the pair’s bear trend technical overview continues to stall and show little significant intraday follow through, testing sell breakout strategies in the process but not enticing buy reversals that much either. The downside move offered shorts a chance to exit, and heavy long sentiment has reached extreme levels for retail traders. Heading into tomorrow’s US NFP report retail traders are extreme long at 80% while institutional bias is a near opposite heavy short 74%.
USDJPY: Yields in decline as growth worries persist
Despite equities powering higher with US indices at record highs, longer term yields continue to edge lower on future growth worries. That, combined with geopolitical tensions failing to subside is giving the yen a chance to outperform, albeit only slightly against the greenback. Most of the pair’s technical indicators are now neutral, but the bear trend line on the daily chart is barely holding after getting breached with the weekend gap higher following the G20 summit. Tomorrow’s NFP report will likely result in shifting rate probabilities and investor risk appetite could change, and retail and institutional traders are majority long heading into that event.
USDCAD: Rising equities and energy prices take commodity currencies higher
Commodity currencies outperformed against the FX majors yesterday, and the Canadian dollar managed to outperform a retreating greenback that’s suffering from lower yields and recent dismal US data. Meanwhile, oil prices rose after EIA’s better than expected surplus, and Canada posted an unexpected trade surplus after eight months of deficits. While the technical overview is bearish and standing at a short-term support level, technicals will hold less relevance in the face of tomorrow’s fundamental event, whereby both US and Canadian employment data will be released at the same time. Contrasting results where one outperforms and the other lags will likely mean this pair will be the most volatile as opposing figures stretch both aspects of this pair.
AUDUSD: AUD takes the top performance award as risk appetite rises
Despite long-term growth worries as yields drop to fresh lows, equities continued to rise and post fresh (if not record) highs. That aided the high-beta and commodity currency in taking the top performance award amongst the FX majors, and with the kiwi and loonie not that far behind. The gains have taken its price towards a short-term resistance level and introduced fresh positive bias in the pair’s technical overview that thus far remains somewhat consolidatory. As for bias, retail sentiment has shifted to the middle while institutional short covering may be occurring given their heavy 76% short bias as of last week that continues to test their short positions ahead of tomorrow’s NFP.
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