Daily Market Outlook, June 4, 2020 

US market rallied yesterday, extending their current winning streak to four days. The Dow Jones added 527pts or 2.1% while the S&P500 rose 1.4% and NASDAQ picked up 0.8%, just a tad away from it’s all-time high in February. All eleven S&P500 sectors ended on positive note save for the healthcare sector. Optimism of an economic rebound continued to favour equities, supported by recovery in economic data despite ongoing demonstrations across America and growing US-China hostility. The Trump Administration now plans to block Chinese flight from entering the US in midJune as US airlines (Delta and United) have not been granted permission by Chinese authority to resume their services to China. The US is also expected to impose restrictions on more Chinese media outlets operating in the US according to a Reuters news story

Risk sentiment was a little more guarded overnight following the rises in recent sessions. The Brent crude oil price fell after topping $40pbl yesterday, while the euro was also lower following gains to mid-March highs against the US dollar.  The euro was supported by Germany’s announcement of a bigger-than expected €130bn stimulus package including a temporary cut to VAT this year to boost spending. 

The main market event today is the ECB’s policy announcement at 12:45pm and the press conference with President Lagarde starting at 1.30pm. The ECB launched its Pandemic Emergency Purchase Programme (PEPP) in March, pledging to buy €750bn of bonds under the scheme this year and to continue until the “Covid-19 crisis phase is over”. There is impetus for more policy stimulus to be announced, especially after President Lagarde said that Eurozone GDP is expected to fall by between 8% and 12% this year. 

An update of the ECB’s staff macroeconomic forecasts is due. The minutes of the last ECB meeting in April stated that policymakers “stand ready to adjust the PEPP and potentially other instruments if it saw that the scale of the stimulus was falling short of what was needed”. Overall, the ECB is expected to announce a €500bn increase to its PEPP, while interest rates are forecast to be unchanged. Markets will be looking for more detail from Ms Lagarde about how purchases are conducted under the scheme. She may also be asked, among other things, about the German Constitutional Court ruling which questioned the legality of the ECB’s asset purchases under its Asset Purchase Programme (APP) launched in 2015. 

This morning’s UK data include new car registrations and the construction PMI report, both for May. April new car registrations fell by a stellar 97.3%y/y and are expected to have remained very negative in May, while the construction PMI is forecast to rebound from just 8.2 but to remain below the 50 level. Eurozone April retail sales are also due this morning and are forecast to have fallen by 15.0%m/m. 

In the US ahead of tomorrow’s monthly payrolls and unemployment figures, the latest weekly jobless claims figures will be released later today. Initial claims are still rising but at a slower pace, while continuing claims (lagging a week) fell for the week ending 16 May for the first time during the pandemic. These trends are expected to continue in the latest numbers. US April trade figures are also due.

Today’s Options Expiries for 10AM New York Cut (notable size in bold)

  • EURUSD: 1.1190-1.1200 (700M), 1.1205-15 (1.4BLN), 1.1225 (400M) 1.1245-50 (1BLN). NB: Another 3-BLN between 1.1200-35 Friday
  • GBPUSD: 1.2250 (344M), 1.2300-10 (500M)
  • USDJPY: 107.85-90 (750M), 108.00-10 (1BLN)
  • AUDUSD: 0.6850 (450M), 0.6915 (250M)

Technical & Trade Views

EURUSD Bias: Bullish above 1.10 targeting 1.1235

From a technical and trading perspective, as 1.10 now acts a s support bulls will target a test of the equality objective at 1.1235, which also represents the monthly R1 and weekly R1, from here expect profit taking for another test of 1.10 UPDATE target achieved intraday as 1.1180 supports potential for another squeeze higher to test offers and stops above 1.13 the 78.6% retracement of the pandemic decline

GBPUSD Bias: Bullish above 1.2475 targeting 1.2650

GBPUSD From a technical and trading perspective, price tested and overcale symmetry swing resistance sighted at 1.2475. As price continues to trade above 1.2475, look for a test of cycle highs at 1.2650 before a potential correction could develop to test bids back to 1.2350

USDJPY Bias: Range trade 1.09 – 1.08

USDJPY From a technical and trading perspective, the topside breach of 108.50 delays downside objectives opening a retest of range resistance above 109, however as supply above 1.09 stems the upside look for a retest of buds back to 1.08

AUDUSD Bias: Bullish above .6900 targeting .7000)

AUDUSD From a technical and trading perspective,sustained price action above .6800 witnessed the grind higher persist opening a test of the psychological bit figure at .7000. From this initial foray above .7000 anticipate profit taking pullback to .6800

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