Forex Signals US Session Brief, July 5 – USD Buyers Gain Some Confidence Amid Thin Markets
Skerdian Meta • 4 min read
Yesterday was pretty quiet in financial markets as US traders headed off for the 4th of July, so the price action was minimal during the European session, as well as in the US session, obviously. That sort of price action has spilled into today, as US traders have taken a long weekend, with most assets remaining pretty quiet for most of the session, although we did see some spark of life in the US Dollar. The USD made some gains which spread across the board, so it seems that forex traders are anticipating some positive numbers from the US employment and earnings report which was released a while ago.
Regarding other fundamentals during the European session, factory orders posted yet another decline in Germany for May. That comes after two positive months in March and April, which followed many negative months at the end of last year and the start of this year. So, the German economy is going from bad to worse, considering the recent economic data. The drop in factory orders will have a negative impact on manufacturing activity in the coming months, which is already in deep contraction.
Boris Johnson who is the main candidate for the Conservative Party leadership and the post of the UK Prime minister mentioned the no-deal Brexit scenario again which turned the sentiment surrounding the GBP even more bearish and GBP/USD is now heading for the lows at 1.15.
The European Session
- Factory Orders Germany – Factory orders were pretty weak last year in Germany, declining during most months, especially at the end of the year and the beginning of this one when we saw some really terrible figures. We saw a short-lived revival in March and April as the global economic slowdown took a pause in Q1, although today’s report was expected to show another reversal into negative territory and orders were expected to decline by 0.1%. But, the report which was for May showed another big decline of 2.2%, putting the German economy back in doldrums where it was.
- BOJ’s Amamiya Doesn’t Seem Too Confident – The Deputy Governor of the Bank of Japan was holding a conference early this morning, saying that we must bear in mind that inflation will take a long time to reach the target of 2%. Still expects inflation will accelerate to 2% target. BoJ won’t hesitate to ease policy if momentum to hit inflation target is disrupted and it does recognize that downside risks are strong. Many countries’ policymakers share the view that the global economy will recover in H2. BOJ is watching carefully how downside risks could affect the economy and inflation. No change to the view that momentum in achieving inflation target is sustained. Will make policy decisions based on the view if the economy is able to sustain momentum to hit the inflation target
- UK Halifax House Prices – The Halifax house price index has been going from positive to negative from month to month. Although we saw two positive months in April and May, the house prices were expected to turn negative again in June and fall by 0.4%. They did turn negative indeed, but the decline was smaller, by 0.3%.
- Juncker Still Seems Unhappy with New Top EU Positions – Yesterday, we heard Juncker say that the EU needs to spread the top EU jobs among the East and the West bloc. Today, he is on this issue again saying that the appointment of Ursula von der Leyen was not very transparent. He ended the comments saying that “I was the first and the last spitzenkandidat”
The US Session
- Canadian Employment Report – The unemployment rate was expected to tick higher to 5.5% in Canada for May, after the decline we saw in the previous month. The unemployment rate ticked higher as expected to 5.5% in June from 5.4% in May. The employment also came weaker than expected, declining by 2.2k against a 9k increase expected. Hourly earnings for permanent employees increased by 3.6% YoY against +2.7% expected. The participation rate remained unchanged at 65.7% from 65.7% prior, which means that the tick higher in unemployment wasn’t due to the participation rate.
- US Employment Report – The unemployment rate was expected to remain unchanged in the US at 3.6%. But, the earnings figures were also included in this report and they were expected to have increased by 0.3% last month. Unemployment ticked higher in the US in June to 3.7% from 3.6% in May. The average hourly earnings also missed expectations growing by 0.2% against 0.3% expected. Non-Farm payrolls beat expectations though, coming at 224K versus 160K estimated. That takes off the concerns that increased last month when payrolls fell pretty low. Average hourly earnings YoY remained unchanged at 3.1% as last month, against an increase to 3.2% expected. Private payrolls also beat expectations coming at 191K versus 150K estimated. The participation rate ticked higher to 62.9% versus 62.8% last month, which is the reason for the increase in the unemployment rate, which is still pretty low by the way.
Trades in Sight
- The trend has been bullish since the middle of June
- The retrace lower is complete
- The 100 SMA provided support
The 100 SMA did a good job in providing support today
EUR/GBP has been bullish for a long time, since it became obvious that Theresa May’s Brexit deal wouldn’t pass the British Parliament. We saw a pullback lower after the European Central Bank turned increasingly dovish in the last meeting, but the uptrend resumed again and the buyers pushed higher. In the last few days, we saw another pullback lower, but that retrace was even weaker and it ended at the 100 SMA (green) which provided solid support. Today, the price is bouncing off that moving average and the buyers are back in control.
The US employment report came out positive, with non-farm jobs increasing by more than 200k which used to be the normal range until last month when we saw a deep slowdown in new jobs. This takes one of the reasons for the FED to cut interest rates this month off the table, and the USD is climbing further on the day.