June’s US employment report in focus

The USD tended to edge a bit lower yesterday yet the overall picture of a sideways motion against its counterparts seems to remain present. We note that US data tended to be better than expected for June as the ADP employment figure skyrocketed to almost 500k, implying a tightness in the US employment market and the ISM non-manufacturing PMI figure rose instead of dropping implying resilience and a faster expansion of economic activity in the US services sector. Today we highlight the release of the US employment report for June and the NFP figure is expected to drop implying a weakening of the US economy’s ability to actually create new jobs, while the unemployment rate is expected to tick down to 3.6%, implying that the US employment market remains tight. For the time being, we see that risks seem to be skewed to the upside for the release and should there be better rates and figures than expected, we may see the USD being supported as it would allow the Fed to maintain its aggressive hawkish stance and proceed with further monetary policy tightening. A possible wider drop of the NFP figure may hint towards an easing of the US employment market’s tightness and may disappoint traders, thus weakening the greenback.

On a technical level, we note that the greenback edged lower against the JPY yesterday and during today’s Asian session, breaking the 143.65 (R1) support line, now turned to resistance.  Given that USD/JPY’s price action was able to break the lower boundary of its past sideways movement, we switch our bias for a sideways motion in favour of a bearish outlook. The RSI indicator is nearing the reading of 30, also underscoring the build-up of the bearish sentiment in the market for the pair, yet the price action has met the lower Bollinger band, which may soften the bears’ approach. Should the selling interest intensify we may see the pair aiming if not breaking the 142.30 (S1) support line in search of lower grounds. On the flip side, should the pair find extensive buying orders along its path, we may see the pair reversing course, breaking the 143.65 (R1) line and aiming if not breaking the 145.10 (R2) resistance hurdle.   

At the same time we also get Canada’s employment data for June. The unemployment rate is expected to tick up and reach 5.3%, while the employment change figure is expected to rise and reach 20k. Should the actual rates and figures meet their respective forecasts, we may see the CAD getting some support as they would imply that the Canadian employment market remains tight. Such rates and figures may provide a green light for the Bank of Canada to proceed with another rate hike next Wednesday, despite a considerable slowdown of the Core and headline CPI rates for May. The importance of the release is emphasized as it may be the deciding factor behind the markets’ expectations for BoC’s interest rate decision, as a possible rate hike is being contested. USD/CAD was on the rise yesterday breaking the 1.3335 (S1) resistance line, now turned to support. We tend to maintain our bullish outlook yet highlight the release of the US and Canadian employment data for June as a key factor for the pair’s direction in the next 24 hours. Should the bulls maintain control over the pair, we may see USD/CAD breaking the 1.3450 (R1) resistance line and aim for higher grounds, while if the bears take over, we may see the pair breaking the 1.3335 (S1) line and aim for the 1.3230 (S2) support base. 

Other highlights for the day:

In today’s European session we note the release of Germany’s industrial output for May, UK’s Halifax House prices for June, Sweden’s and Norway’s GDP for May while we also note that BuBa President and ECB policymaker Nagel speaks. In the American session besides the US and Canada’s June employment data, we also note that Bank of England interest rate-setter Mann, ECB President Christine Lagarde and ECB Vice President De Guindos are scheduled to speak. During Monday’s Asian session, we note the release of Japan’s current account balance for May and China’s inflation metrics for June. 

USD/JPY H4 Chart

Support: 142.30 (S1), 140.80 (S2), 138.80 (S3)

Resistance: 143.65 (R1), 145.10 (R2), 146.80 (R3)

USD/CAD H4 Chart

Support: 1.3335 (S1), 1.3230 (S2), 1.3135 (S3)

Resistance: 1.3450 (R1), 1.3545 (R2), 1.3650 (R3)

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