The US dollar strengthened against some of its peers yesterday as the higher than expected figures for unemployment requirements for the past week left it unimpressed. According to analysts, the release tends to support arguments that the US labor market may still be under the strong influence of the pandemic. The release is also expected to receive further attention in the following weeks as investors may want to see the extent to which companies will recover when they reopen in the US. We may see that the extent of rehabilitation is slow, at least in the beginning, which may delay a possible return to growth for the US economy. We also maintain our concerns about the extent to which consumer habits return to normal following the reopening of the US economy. Financial data seems to remain bleak in most parts of the world, while fundamentals are not expected to show a significant shift unless economies start to open again sooner than later. We expect that safe harbor flows can continue to burn USD, but today’s economic releases may also be catching up to traders. Characteristically, the USD / JPY rose with the goal of resistance line 107.75 (R1). In its upward move, the pair brought the downward trend line recorded since May 11th, which is why we are initially shifting our bearish outlook for the pair in favor of a sideways move. Should the pair get under market interest, we could see the pair breaking the 106.60 (S1) support line, moving further south. If the pair’s long positions are preferred by the pair, we could see it breaking resistance line 107.75 (R1) in search of greener pastures.
GBP continues to weaken as Brexit weighs
The GBP briefly touched a 5-week record low against the USD yesterday as the bearish move for the pound appears to continue. Yesterday, at a Cabinet meeting, Johnson’s top ministers were updated on the talks by the UK’s top Brexit negotiator, who reportedly said the UK did not ask for “anything special, tailored or unique” in the talks, just a free trade agreement, as reported by Reuters. After the UK government once again refused to extend the negotiation period with the EU on their post-Brexit relationship, our concerns about the pound increase as Brexit risk seems to weigh even more on the pound. It should also be noted that the EU threatens the U.K. with a lawsuit on free movement of people and the whole event is practically a reminder of how the UK is still bound by EU rules. The combination of weak economic data with Brexit risks tends to provide fertile ground for the bears to come in as the pandemic still has a grip on Britain. It is characteristic that the United Kingdom suffers from the highest death toll in Europe, while it also seems to delay the reopening of the economy. We tend to maintain a bearish outlook for the GBP and also note that BoE expects more monetary easing which could hurt the pound. The GBP / USD initially fell by breaking the 1.2200 (S1) support line, but corrected higher afterwards. We maintain our bearish outlook for the pair as it remains below the downward trend line form recorded since May 8th. Should the bears retain control over the pairing, we could see that it finally clearly breaks the 1.2200 (S1) support line and aims for the 1.2015 (S2) support level. If the bulls take over, the cable can aim, if not break the resistance line 1.2400 (R1).
Other economic highlights today and early tomorrow
Today during the European session, we get Germany’s preliminary GDP growth rate for Q1, France’s final CPI (EU standard) for April and the Eurozone’s 2nd estimate of Q1 GDP growth rate. In the US session, we will see US retail sales growth in April, industrial production growth for April, the preliminary indicator of the May University Michigan Cup and Baker Hughes oil count. During Monday’s Asian session, we will see Japan’s GDP growth rates in Q1. Also note that Eurozone finance ministers need to have a conference call and ECB President Lagarde to attend.
Support: 106.60 (S1), 105.30 (S2), 104.15 (S3)
Resistance: 107.75 (R1), 109.10 (R2), 110.60 (R3)
Support: 1.2200 (S1), 1.2015 (S2), 1.1815 (S3)
Resistance: 1.2400 (R1), 1.2580 (R2), 1.2770 (R3)