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Week Ahead: As Good as It Gets?

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Fundamental analysis of Forex market

US Non-Farm Payrolls data released on Thursday showed an increase of +4.8 million jobs for the month of June vs an expectation of +3.0 million, a new record!  PMI data around the globe was revised higher from earlier in the month.  Central Banks and nations continue to stimulate the economy to reduce the effects of the coronavirus.  Nasdaq 100 is at all-time highs. Can it get any better than this, especially in a world where the coronavirus is a factor in every decision we make?  The RBA Interest Rate decision and the Canadian Employment will be the main economic data this week, but traders will be on the lookout for increases in coronavirus cases to determine if economies will need to “re-close”. Brexit negotiations will also continue as Boris Johnson gave negotiations a three-month deadline.

In addition to the US adding 4.8 million jobs to the economy in the month of June, the unemployment rate fell to 11.1% vs an expectation of 12.4%.  Although the 4.8 million is a new record for jobs added in a month, recall that the economy lost over -20 million jobs in the month of April.  There is still a 13 million job deficit from February.  Also, average hourly earnings (one of the Feds favorite data points, decreased -1.2%.  This decrease can most likely be attributed to lower paid employees returning to work.  In addition to the jobs report, as more and more countries re-open, manufacturing has been picking up as well.  EU Manufacturing PMI was revised up to 47.4 from 46.9, Australia’s was revised to 51.2 from 49.8, and the US ISM Manufacturing PMI was 52.6.

With employment and manufacturing rising, are we out of the woods yet regarding the coronavirus? Can this recovery be sustained? The UK is re-opening as of July 4th!  But if US re-opening is any indication as to how the recovery will proceed, chances are that job increases and manufacturing will be slowing down.  Last week, 37 US states reported increases in the number of coronavirus cases.  Many states are slowing their re-openings or even re-closing.  Parts of California, Texas, and Florida have had to re-close some bars, restaurants, and beaches.  With the UK re-opening, traders will be watching for more increases in cases there as well.  Leichester already had a flare up and had to re-close schools and non-essential shops.  Can risk remain strong if the number of cases pick up and data begins to turn down?  Traders will be watching this week are headlines regarding any upticks in cases.

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Central banks and individual nations continue to provide monetary and fiscal stimulus to the economy.  Last week, Sweden’s Riksbank increased their bond buying by SEK 200 billion.  They also raised their growth forecast!  The UK announced a new plan for spending on roads, railroads, and hospitals.  In the US, the senate extended the Payroll Protection Program until early August and is still considering a $1 trillion infrastructure as well.  Throughout the summer, traders will need to watch for signs of tightening from central banks.

President Trump still insists on not wearing a mask and continues to say the virus is close to betting under control.  Meanwhile, Democratic candidate Joe Biden has already indicated that if he becomes US President in November, he will make it mandatory to weak masks in public places.  In addition to the economic differences between the two candidates, this issue is going to be a hot debate topic as we move throughout the summer and into the US Presidential Elections in November.

Brexit negotiations will continue through the summer.  Boris Johnson continues to insist that he is willing to walk away from the table if substantial progress is not made soon, however he said last week that negotiations seems to be going well.  At the same time, Merkel said that the EU should be ready to leave without an agreement.  Traders need to be on the lookout for more headlines this week.

The second week of July brings with it the RBA’s interest rate decision and the Canadian Employment Change.  Traders will be watching the RBA’s statement intently for any language regarding a positive revision to forecasts.  With the Canadian employment data on Friday, traders will be watching to see if the data was as good as that of the US.  However, Canada is not plagued with re-closings like those in the US. Therefore, if we begin to see better than expected data out of Canada, the Canadian Dollar may go bid.  Other economic data this week is as follows:

Saturday

  • EU: ECB President Lagarde Speech

Monday

  • Germany: Factory Orders (MAY)
  • EU: Construction PMIs (JUN)
  • UK: Construction PMI (JUN)
  • UK: New Car Sales (JUN)
  • EU: Retail Sales (MAY)
  • US: ISM Non-Manufacturing PMI (JUN)

Tuesday

  • Australia: RBA Interest Rate Decision
  • Germany: Industrial Production (MAY)
  • UK: Halifax House Price Index (JUN)
  • China: Foreign Exchange Reserves (JUN)
  • Canada: Ivey PMI s.a. (JUN)

Wednesday

  • Australia: RBA Chart Pack
  • Canada: Housing Stars (JUN)
  • Crude Inventories

Thursday

  • China: Inflation Rate (JUN)
  • China: PPI (JUN)
  • Germany: Trade Balance (MAY)
  • US: Initial Jobless Claims (week ending July 4th)

Friday

  • Canada: Employment Change (JUN)
  • US: PPI (JUN)

Chart of the Week: Daily NASDAQ 100

Source: Tradingview, FOREX.com

The NASDAQ 100 Index continues to impress as new highs are seemingly put in daily.  However, there may be reason to be cautious as the RSI is diverging from price.  As price has put in 3 higher highs and the RSI has put in 3 lower highs, this is a strong indication that price may be ready for a pullback.  In addition, price is putting in an ascending wedge formation.  If price breaks back below the rising trendline near 10000, the target would be the bottom of the ascending wedge near 9381.  Support below there is at the 200 Day Moving Average near 8705.

With most of the important data out of the way last week, the market may be ready for a correction.  If coronavirus cases continue to increase in the US or begin to increase in other countries, the data may begin to slow.  Watch the headlines for number of new cases this week.

Please remember to always wash your hands and wear a mask when possible!