WHAT MOVED THE MARKET
Underwhelming US Job Data
Before the Coronavirus pandemic spread globally, U.S. unemployment rate was at its 50-year lows. Due to social isolation measures, U.S. unemployment rate is soaring at an alarming speed. The Labor Department reported on Thursday that another 6.6 million people made new jobless claims-applications by laid-off workers for unemployment insurance payments in the week ended April 4. Meanwhile, a record 7.5 million Americans were already receiving unemployment benefits at the end of March, which eclipsed the prior record of 2019. As more industries get impacted, the numbers will keep growing. Unemployment data is an important indicator of the total demand and supply level of economy. But interestingly, financial markets stay stable amid these data. S&P 500 index closed at 12.10% high last week, investors seem to consider current market levels as proper reflections of economic situations and are confident of the recovery of economy given present governments’ supportive fiscal and monetary policies.
Figure 1: AUDUSD Hourly Chart
With the release of Australia’s Trade Balance that measures the difference in value between imported and exported goods and services, it showed a much greater value of 4.36 B than the 3.75 B forecasted, thus, strengthening the AUD. Meanwhile, the value of USD depreciated over the past week with the worse than expected Unemployment Rate and Consumer Price Index which measures the cost of living. As a result, the AUDUSD pair increased in price since the 6th of April, breaking the 0.6117 resistance level before travelling towards the 0.6205 level which eventually breaks out of this level as well. The bullish momentum is evident from the “golden cross” formation where the 50 EMA crosses above the 200 EMA which occurred during the last few hours of the 6th of April. Eventually, all smaller period moving averages were positioned on top of the 200 EMA, therefore, indicating strong momentum throughout the week. This momentum is also displayed in the dominance of long bullish candles in the uptrend before reaching consolidation at 0.6350 by Friday. Hence, in the coming week, AUDUSD may decrease due to the RSI curve going into the overbought region (above the 70 level) multiple times before the market closed for the week. On the other hand, if upcoming news such as US’s Retail Sales suggests a weakening in USD while Australia shows a reduction in Unemployment suggesting the strengthening in AUD, the price of AUDUSD will continue going up.
Figure 2: GBPUSD Daily Chart
Unpredictable is the order of the day if we select data from the past year. The upper bound diverges from the lower bound which points to a downward trend. This set of peaks and troughs could be potentially explained by the previously ongoing Brexit deal brokering which was finalised in late 2019 to a re surging GBP before the COVID-19 crisis arrived. The most recent trough was resolved when the US Federal Reserve initiated a potent arsenal of monetary/fiscal programs and global co-operations to restore order in global markets. Essentially, data from this time-frame contains a quagmire of significant systematic shocks, forecasting by eye based on this historical data might lack confidence. We turn to the short run for a trading solution. The GBP is at a 3 week high after being carried by a wave of favorable news ranging from PM Johnson leaving the ICU, better than expected indicators and US falling below forecasted unemployment. The upward trend is on the brink of breaking the resistance level of 1.25, analysts are currently speculating whether if the momentum will carry the GBP towards the next resistance level which is accepted to be ranging in the region of 1.26-1.27. Should it break both, there may be a bullish outlook in the near future and may rise to as high as 1.3. The general sentiment however is still bearish in this economic climate.
Figure 3: GBPUSD Daily Chart