May’s US employment report supports the USD

The USD gained against its counterparts on Friday as the US employment report for May came in hotter than expected. It should be noted that the unemployment rate came in higher than expected at 4.0% yet the NFP figure unexpectedly rose to 272k highlighting the ability of the US employment market to continue creating new jobs, while the average earnings growth rate accelerated to 4.1% yoy, implying that the US employment market may continue feeding inflationary pressures in the US economy. We tend to view the report as a factor hardening the Fed’s stance to keep rates high for longer, in its interest rate decision on Wednesday. Understandably the release had a bullish effect on the USD, yet at the same time curbed US stock markets’ bullishness and weighed on the price of gold.

USD/JPY rose during Friday and today’s Asian session, yet remained well within the boundaries set by the 157.75 (R1) resistance line and the 154.60 (S1) support level. We tend to maintain a bias for the sideways motion of the pair to continue, between the prementioned levels. Yet we also note that the pair has been moving within an upward channel since the start of the year, hence we issue a warning for any bullish tendencies. Should the bulls reign over the pair’s direction, we may see USD/JPY breaking the 157.75 (R1) resistance line and aiming for the 160.35 (R2) resistance level. Please note that the R2 is practically a multi decades high and any breaking of the R1 sets the pair in a zone that may prompt BoJ to intervene in JPY’s favor. On the flip side, should the bears take over, we may see the pair breaking the 154.60 (S1) support line and taking aim of the 151.90 (S2) support level.   

The common currency is losing ground against the USD, the JPY and the GBP in a sign of wider weakness. On a fundamental level, the result of the EU Parliament elections seems to be reinforcing far-right ideologies, hence we may see centrifuge forces rising in the European Union. Adding further uncertainty to the political outlook of the EU, was the decision of French President Macron to call for a snap election and overall we see the case for EU fundamentals to weigh on the EUR currently.     

EUR/USD had a marked sharp drop on Friday which continued during today’s Asian session, yet still is between the 1.0890 (R1) resistance line and the 1.0740 (S1) support line. We note that the RSI indicator has broken below the reading of 50, implying a build-up of bearish tendencies for the pair. Yet for bearish outlook, we would require the pair to break the 1.0740 (S1) support line and set as the next possible target for the bears the 1.0615 (S2) support level. Despite a bullish outlook having low possibilities currently, we would adopt it if the pair breaks above the 1.0890 (R1) line and starts aiming for the 1.1010 (R2) resistance base.      

Other highlights for the day:

Today we note the release of Sweden’s GDP rate for April, Norway’s CPI rates for May and Eurozone’s Sentix index for June. During tomorrow’s Asian session we get Australia’s business conditions and business confidence indicators for May.

As for the rest of the week:

On Tuesday we get UK employment data for April, the Czech Republic’s CPI rates for May and Canada’s Building permits for April. On Wednesday we note the release of Japan’s PPI rates for May China’s inflation metrics also for May, the UK’s GDP rates for April, the US CPI Rates for May and on the monetary front we highlight the release of the Fed’s interest rate decision. On Thursday, we note the release of Australia’s employment data for May, the Eurozone’s industrial output rate for April and from the US the weekly initial jobless claims figure and the PPI rates for May. Finally, on Friday we make a start with BoJ’s interest rate decision and also get Sweden’s CPI rates for May and from the US the UoM consumer sentiment for June.

USD/JPY Daily Chart

Support: 154.60 (S1), 151.90 (S2), 148.85 (S3)

Resistance: 157.75 (R1), 160.35 (R2), 163.00 (R3)

EUR/USD Daily Chart

Support: 1.0740 (S1), 1.0615 (S2), 1.0450 (S3)

Resistance: 1.0890 (R1), 1.1010 (R2), 1.1140 (R3)

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