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Safe-Havens Are Back In Style Ahead Of The Weekend

Posted Friday, May 1, 2020 by
Shain Vernier • 2 min read

Since COVID-19 became the premier driver of global markets, Friday’s have been a time for “risk-off” sentiment. Today has been no different. At the midway point of the U.S. session, the DJIA DOW (-625), S&P 500 SPX (-85), and NASDAQ (-60) are all experiencing a pullback. Subsequently, safe-haven values are up, led by a $7.50 per ounce gain in gold.

Another day, another set of terrible economic reports. Here’s a look at this morning’s metrics:

Event                                                                           Actual            Projected       Previous

ISM Manufacturing PMI (April)                                  41.5                   36.9                49.1

ISM Manufacturing Employment Index (April)        27.5                  37.0                43.8

In reality, this set of numbers is largely irrelevant. The markets have already priced in the impact of the coronavirus contagion ― now, it’s a question of how fast economic activity will return to normal levels. Given the extent of the downturn, reports from June and July will carry much more weight than those of April.

Safe-haven assets are gaining ground ahead of the weekly close. Let’s dig into the technical outlook for the USD/JPY and see if we can spot a trade or two.

Safe-Havens Rally Ahead Of The Friday Close

Aside from gold, the Swiss franc and Japanese yen are also showing strength. This means a bearish trend in the USD/JPY and a test of downside support.

USD/JPY, Daily Chart
USD/JPY, Daily Chart

At this point, the USD/JPY has entered consolidation between two key technical levels. Here they are:

  • Resistance(1): Daily SMA, 107.37
  • Support(1): 50% Macro Wave Retracement, 106.44

Bottom Line: Sometimes, rotational markets give us great opportunities to trade. Until elected, I will have sell orders for the USD/JPY queued up from 107.24. With an initial stop at 107.56, this trade produces 25 pips on a sub-1:1 risk vs reward ratio.

All in all, safe-haven values are proving strong in today’s market. While this is no surprise going into the weekend, it will be an interesting dynamic to watch for early next week.

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