First, last week's review:
The latest US employment data is not only optimistic, but over-optimistic. Almost 4.8 million people returned to work in June. The unemployment rate fell from 13.3% to 11.1% which is the best increase in non-agricultural employment since records began in 1939.
So what happened? no thing! The market has almost stopped responding to macroeconomic indicators as it tracks other new indicators which are COVID-19. Here, the United States has surpassed both Europe and China. As a result, the US economy is falling into a vicious circle as the more jobs, the more businesses are newly opened, the more people work, they start visiting restaurants, travel by buses and subways, the more people are infected with the coronavirus.
Only those on Thursday, July 2, numbered 57,000 — nearly double what it was at its peak in April. Things are much better in China and Europe, so they can relaunch their economies more actively. On the contrary, the United States will have to slow down this process.
Positive stats for July may be the peak, followed by a new low. But the United States, according to the Congressional Budget Office, will need at least ten years in order to return to the level of unemployment that was before the pandemic (3.5%). In the absence of other drivers of decision-making, the market is standing at a crossroads, trying to anticipate how the situation will develop with COVID-19 and what measures the US leadership can take to deal with the new wave of the pandemic.
The inability of investors to take any direction was reflected in the forecasts of experts. Remember, their opinions were roughly divided last week: 30% voted for the pair's growth, 40% for its downside, and 30% for a sideways trend. At the same time, the boundaries of the channel on which it moved in the second half of June - 1.1170 and 1.1350 were named as the main levels of support and resistance. In fact, volatility was lower, the pair did not exceed 1.1185-1.1300, and ended the week at 1.1245 - roughly the same 1.1240 pivot point during which it returned to March 2019.
GBP / USD
Was it a temporary correction or a reversal of the 20-day downtrend? Post-Brexit negotiations are going well and, according to a number of experts, the EU appears ready to make concessions on the jurisdiction of the European Court of Justice. This inspires investors with optimism about the future of the British currency, which is reflected in its prices.
The GBP/USD pair found a local bottom at 1.2250 on Monday, June 29th, after which it rose steadily, reaching a high of 1.2530 on Thursday, July 2nd. The final chord appeared at around 1.2480, allowing the pound to reclaim 145 points from the US currency in a week.
USD / JPY
The Japan State Pension Fund (GPIF), the world's largest management company in the field, announced record losses for the first quarter of 2020, which amounted to 17.7 trillion yen ($165 billion). Details of its losses allow us to draw some analytical conclusions. So let's see, the GPIF lost 22% (10.2 trillion yen) on investments in shares of foreign companies, 18% (7.4 trillion yen) on investments in the Japanese stock market and only 0.5% (185 billion yen) on investments in Japanese government securities.
Due to the pandemic, the US S & P500 fell by 20%, the Japanese Topix was slightly lower by 18%, the ten-year US Treasury yield during this period fell by 125 basis points, and here the yield of similar government securities in Japan increased by 3 basis points . The yen also strengthened in the first quarter - by 1% against the dollar, and by 3% against the euro.
These numbers are so eloquent about Japanese assets that they can be considered a true haven. As for the behavior of the USD/JPY pair in the past week, there were no special events, the yen and the dollar continue to struggle with mixed success for the money of investors who do not want to risk, and as a result, the pair continues its movement along the pivot point in the 107.50 area. That's where I end the trading session.
Next week's forecast:
No particularly important economic events are expected in the coming week. There will be a number of new applications for unemployment benefits in the US, as well as some data on ISM business activity in the service sector, and industrial production in Germany.
However, most likely, they will not be able to shake the market much. Due to the fact that all interest rates are almost zero, bond yield differentials have nothing to respond to either. As has already been said, the reaction of investors to the news about COVID-19 is likely to influence the behavior of the EUR/USD pair.
Another interesting factor that can affect the dollar is the results of the US presidential election, which will determine the country's economic policy. But it's still four months away, and a serious recovery is not expected until fall begins. Although Donald Trump is known for his ability to deliver unexpected surprises at any moment, this point is almost impossible to predict.
It is not worth focusing on the indicators readings for the pair in recent weeks, because their main color on both H4 and D1 has turned neutral grey. Technical analysis refuses to show any signals either. But among analysts, belief in the dollar still prevails. So, 45% of them voted for its growth and the decline of the EUR/USD pair, first to the lower boundary of the 1.1170 channel, and if it is broken it will fall another 70-100 points. 25% of experts expect to see the pair at a high of 1.1400, and the remaining 30% expect a continuation of its consolidation in the 1.1240 pivot point area.
Let's repeat the question asked in the first part of the review: “Was it a temporary correction or a reversal of the June downtrend?” Technical analysis on H4 confidently answers this question: “reversal” and expects an additional rise for the pair to the high of June 10 at 1.2810. While on D1, expectations are somewhat different first, a decline to support 1.2245, then a return to the level of 1.2480
The vast majority of trend indicators (90%) and oscillators (85%) on H4 are painted green. Whereas in D1 there is no such clarity: where priority is gray neutral, and 15% of the oscillators are overbought.
As for analysts, they will first wait for the results of the next round of negotiations on the terms of the United Kingdom's exit from the European Union, and in the meantime, 30% of them believe that the pair will move within the side lane 1.2245-1.2680, in the central zone where it ended the previous week, and expect 20 Others % to rise to the top of 1.2810, and 50% of experts expect the pair to fall to the 1.2160 support, and then drop 100 pips after that if it is broken.
USD / JPY
Here, the experts' votes were distributed as follows for the pair's growth of 40%, for the downside of 40% and for the sideways trend of 20%. On H4, the indicator readings are not clear, but they are clearer on D1. Among the trend indicators in this time frame, 70% are pointing north and 85% of the oscillators are also pointing north. The support levels are 107.30 and 106.60 and the bottom line of the side channel is 106.00. The resistance levels are 108.10, 109.30 and 109.85.