Markets optimism returned this week after a rather gradual bearish run in the last week. While last week was burdened with Covid-19 resurgence and trade conflict headlines, risk-on has returned this week with positive reports concerning Covid-19.
COVID-19 second wave
Covid-19 second wave has been a major concern for global leaders for the last two weeks. The fear of a fresh lockdown pressurized the market as investors looked to take cover with less risky assets. This was further worsened by the US’s intention of slapping fresh tariffs on EU goods. Gold, Yen and the Dollar started to make good bullish statements while the stock markets plunged some of the past weeks’ gains. Aussie, NZD & CAD plummeted as riskier currencies.
Pfizer coronavirus vaccine upbeat report
Pharmaceutical giant Pfizer, in a combined experiment with German firm BioNTech, said it has developed a Coronavirus vaccine that would help people develop a stronger immune to the virus. After testing on 45 people, the vaccine was said to be capable of protecting a person from sickness as a result of the deadly virus. However, the work is still at the ground state. It’s yet unclear what level of immunity a person must develop to naturally fight off the virus. Nevertheless, health professionals have lauded the efforts and have called for a larger clinical trial to test the safety and effectiveness of the vaccine.
Meanwhile, the news drew the market to an upbeat mood as Dow & the S&P 500 recovered all of last week losses while the NASDAQ hits fresh high. Oil prices also surge, although still remain some ways from the recent high. Expectedly, the bid for safe-havens dropped.
Gold was the biggest hit with a $30 dip (nearly -1.7%). The zero-yielding commodity was dragged away from the 1800 psychological level it has ambitiously eyed since June. The dollar and Yen also dropped significantly. The dollar index (DXY) has slumped by 0.7% to 97. Euro and Sterling are up by 0.7% and 2% respectively. USDCAD dropped to 1.355 while USDJPY fell by 80 pips since July 1. Aussie and Kiwi made significant bounces.
June US Job Report
On Thursday the latest US job report will be released. This includes the heavily-anticipated Non-Farm Payroll, the unemployment rate, and the average hourly earnings reports and will be the second release since the Covid-19 lockdown was eased.
After a massive job decline in April by about 20 million as a result of Covid19, the NFP recovered 2.5 million new jobs in May after the lockdown was eased. Meanwhile, Economists’ consensus expects 500k more jobs on Thursday than previous and an improved 12.2% unemployment rate. Traders should watch out for the deviation between the actual data and expected data.
Hawkish data: The USD will most likely gain across the board if the job data come out much better than expected. We should see EURUSD and GBPUSD resume the bearish run below 1.12 and 1.24 respectively. USDJPY is expected to continue bullish correction to 107.8. However, a bullish dollar would most likely be capped considering the current general upbeat market mood.
Dovish data: On the flip side, the dollar would decline against its major peers if NFP and unemployment rate surprise with massive negative deviation from expectation.
DXY would then plunge below 97 toward the 96.4 support level. EURUSD should breach the 1.13 handle and perhaps charge toward the 1.135 resistance level. GBPUSD bull would overtake 1.254 toward the 1.2685 and 1.2815 resistance levels. The USDJPY should plunge to 106.8 thus triggering a potential decline to the 106 support handle next week.
What traders should look forward to next week
There are some high impact economic releases and events next week. Therefore, the market would not be short of volatility. However, the underlying drivers remain the major geopolitical events including the US presidential campaign, Covid-19 headlines, trade talks, and any other that might arise. Some of the economic releases traders should look forward to include the Reserve bank of Australia rate statement, Canada’s job reports, and the US ISM non-manufacturing PMI