Daily Market Outlook, June 4, 2021

Overnight Headlines

  • Biden proposes 15% corporate minimum tax to win Republican backing of infrastructure plan
  • Biden order bans investment in dozens of Chinese defense and tech firms • Biden outlines plan to quickly share 25 mln COVID-19 vaccines with world
  • U.S. job growth likely picked up in May, worker shortages still a challenge
  • NY Fed Williams – Now not the time to take action on tapering
  • Foreign CB US debt holdings +$926 bln to $3.536 tln Jun 2 week
  • Duration of USD weakness splits FX analysts – poll
  • Rally in emerging market commodity currencies to roll on – poll
  • Japan's yen set to suffer a while longer as BOJ baulks at tapering
  • JP Apr Household Spending YY 13%, 9.3% f'cast, 6.2% prev, best since comparable data in Jan ‘01
  • Japan's fiscal blueprint draft to call for fiscal reform – Nippon TV
  • Australia's Victoria detects Delta COVID-19 virus variant in latest outbreak
  • UK’s Sunak hugely optimistic about G7 agreement
  • Russian rainy day fund to get out of all U.S. dollar assets
  • Musk 'trolling' puts brakes on bitcoin's rebound

G10 FX Options Expiries for 10AM New York Cut

(Hedging effect can often draw spot toward strikes pre expiry if nearby)

EUR/USD: 1.2050 (477M), 1.2100-10 (1.4BLN), 1.2120-30 (684M), 1.2150 (1BLN)

1.2170-75 (1.2BLN), 1.2200 (1.1BLN)

EUR/GBP: 0.8450 (200M), 0.8535-50 (900M), 0.8625 (229M)

GBP/USD: 1.4050 (204M), 1.4240 (380M). AUD/NZD: 1.0600 (200M)

AUD/USD: 0.7600 (392M), 0.7660-75 (422M), 0.7700 (236M)

0.7730-50 (1.8BLN), 0.7780-0.7800 (2.3BLN)

USD/CAD: 1.2030-35 (425M), 1.2100 (322M), 1.2150 (290M)

USD/JPY: 109.90-110.00 (1.4BLN), 110.20-25 (580M), 110.40-50 (612M)

Technical & Trade Views

EURUSD Bias: Bearish below 1.2150 bullish above

EURUSD From a technical perspective, the close through 1.2140 suggests a corrective phase developing.

Overnight trade: Trades heavy in quiet Asian session ahead of US jobs • EUR/USD opened -.68% at 1.2127 after USD broadly gained on strong US data • EUR/USD maintained offered tone in Asia and traded to a 3-week low at 1.2114 • Heading into the afternoon it was trading around 1.2115 • Short-term trend higher ended yesterday and EUR/USD is vulnerable • Key will be reaction in US yields to US non-farm payrolls later today • Expectations of strong jobs number are riding high after Thursday's ADP • There isn't support until 1.2051 where a 38.2 fibo converges with May 13 low • Resistance at 1.2173 and break eases downward pressure


Flow reports suggest downside bids to 1.2080 before weak stops appear and open up a deeper move through to the 1.2000 level with very little congestion until that point

GBPUSD Bias: Bullish above 1.41 bearish below

From a technical perspective, below 1.41 concerns the bullish thesis opening the window for a corrective cycle.

Overnight trade: steady in Asia after fall yesterday • GBP/USD does little in Asia, 1.4096-1.4108, quiet, few flows • Market hunkering down for potentially big US NFP report tonight • Expectations for non-farm payrolls at +650k, unemployment 5.9% • Cable near base of recent range, decisive break below 1.4100 bearish • Trade thru 1.4075-80 – 1.4078 low May 17 – may see push towards 1.4000 • 1.4000 seen current base with 1.4008 low on May 13

Flow reports suggest downside bids likely 1.4090-80 area and opening to the 1.4000 level with very little support other than limited psych bids, however, the move through will then start to see stronger bids into the 1.3950-1.3900 area limiting any further loses.

USDJPY Bias: Bullish above 108 targeting 112

USDJPY From a technical perspective, as 108.30 supports bulls will target 110.70’s, a closing breach of 108.30 would suggest a corrective move to test 106.30

Overnight trade: buoyant into Tokyo fix, off some later pre-US NFP • USD/JPY buoyant into Tokyo fix, off after as demand wilts • From 110.32 high to 110.15 EBS, downside limited however • Market awaiting US NFP/jobs report tonight, to set tone for month • Strong Japan data shrugged off • USD/JPY offers from 110.30-35, bids below from ahead of 110.00 • Large option expiries 109.90-110.00, 110.20-50 to help contain action • US yields steady near yesterday's highs, Treasury 10s @1.626% • JPY crosses mostly buoyant, JPY still weakest of majors, on carries

Flow reports suggest downside light through the 108.50 before opening the market to a new test of the 108.00 level, stronger bids into the 107.80 however, a break through the level is likely to see weak stops and breakout stops appearing and the market free to quickly test 107.50 and an old trendline then nothing until closer to the 107.00 area where stronger bids start to appear but the downside opening to Feb levels, topside offers through to the 110.00 level with light congestion through the figure level and weak stops possibly limited and stronger offers likely increasing on a move higher towards the 111.00.

AUDUSD Bias: Bearish below .7790 bullish above

AUDUSD From a technical perspective, the breach of .7790 refocuses attention on the downside as .7820 contains upside attempts, look for a test of .7680.

Overnight trade: Retains offered tone ahead of key U.S. payrolls • AUD/USD opened -1.20% @ 0.7660 after USD broadly gained on strong US data • It traded 0.7651/66 range in Asia and was around 0.7755 into the afternoon • Market awaits US jobs data and the reaction in US yields after it is out • Break lower leaves AUD/USD vulnerable after long period of consolidation • SHS neckline was at 0.7678 and 61.8 fibo was at 0.7669 and both gave way • Next support is at 76.4 of 0.7532/0.7891 move at 0.7617 • Major support is at 0.7530/35 where 200-day MA and 2021 low converge • Resistance is at 0.7725 where 10-day and 100-day MAs converge AUD/USD range break may be beginning of pronounced drop The Australian dollar has finally broken below solid support after 16 straight days of closing on the 77-cents handle. A weekly close below 0.7700 would pave the way to a move towards major support below 0.7550. Strong U.S. economic data on Thursday sent Treasury yields higher and forced U.S. dollar bears to capitulate ahead of the always crucial monthly jobs report later on Friday. If solid U.S. employment numbers continue to underpin Treasury yields, the short-USD conviction trade may further unravel. The AUD has also benefited from surging metal prices since the start of 2021. Thursday's over 3% fall in London copper futures might be the start of an overdue correction lower in key commodities. The AUD/USD technical outlook has turned bearish. Analysts have been warning of a potential 'head and shoulders' pattern on the AUD/USD charts and the neckline of the formation around 0.7680 broke Thursday. The 0.7660 close was also below the 61.8 Fibonacci retracement of the 0.7532-0.7891 move at 0.7669. An obvious objective of an AUD/USD correction lower is 0.7530-35 where the 2021 low and the 200-day moving average converge. A risk to the short AUD/USD trade is if U.S. non-farm payrolls disappoint elevated market expectations of a 650,000 jobs increase. If the AUD/USD breaks above 0.7725 where the 10-and 100-DMAs converge, it would likely revert to sideways range trading.

Flow reports suggest below the 0.7680 sees stronger bids to 0.7650 area failure here exposes stops below .7600

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