Saudi Arabia along with other OPEC+ members proposed an increase in production over the coming months and extend a broader agreement in output until the end of 2022 for the sake of stability

5 July 2021, 03:23

Market Focus

US equities advanced as upbeat job report ease concerns of an early Fed tapering. The S&P 500 and the Nasdaq index both made record high, climbed 0.75% and 1.15% respectively. The S&P 500 had a seven-day winning streak and marked the longest rally since last August. Technology and Consumer Discretionary shares gained the most within the S&P 500, whereas Financials fell slightly behind. The 10-year Treasury yield dropped 3 basis points to 1.429%.

Friday’s US job report was a Goldilocks scenario for the stocks market. The Non-farm payroll number printed 850,000 compared to consensus’s 700,000, good enough to signal a healthy recovery in the labor market. However, the Unemployment rate, a top priority of the Federal Reserve, dropped 0.1% from May’s 5.8%, suggesting the Fed is still a distance away from full employment, thus unlikely to pull liquidity away from the financial market in the near term.

Talks between oil-rich nations are stuck. Saudi Arabia along with other OPEC+ members proposed an increase in production over the coming months and extend a broader agreement in output until the end of 2022 for the sake of stability. However, UAE opposed such extension and demanded a better deal for itself for 2022. The UAE asked for 3.8 million barrels a day under an extension, the current level is set at about 3.2 million barrels a day. According to Bloomberg, Saudi Arabia and Russia have rejected re-calculating the output target for UAE, fearing that everyone else would ask for the same treatment. Negotiation is scheduled to resume on Monday.

Main Pairs Movement

Non-US currencies recovered part of their losses against the dollar upon Friday’s job report. The decline in the unemployment rate in the United States will help to moderate recent dollar strengths, but it provides little incentive to shift from a bullish dollar as its economic recovery remains robust. Moreover, the structural resistance line in the dollar index also contributed to a pullback, reached the highest point of 92.63 since April.

Gold rebounded from a $1760 support line to $1795 during a three-day rally. The precious metal has been rejected from $1795 since June 18th, indicating the upward momentum lacks follow-up buys. We expect a continuation to the downside given the fading demand for inflation hedging, as well as an absence of any major risk events.

Oil prices may recede from a multi-year high if Saudi Arabia and its allies can’t seal a deal with the UAE on Monday. The Canadian dollar could also be impacted given its large exposure to the oil export, thus USDCAD could shoot up significantly under a strong dollar and possible oil retreat.

Technical Analysis

USDJPY (4- Hour Chart)

After rising to the highest since last year, USDJPY weakens despite NFP surpasses expectations. From the technical perspective, USDJPY meets a tough resistance level at 111.65; however, the bias remains bullish as the pair continues to trade within the ascending channel, at the same time, the pair trades well above the 20 and the 50 simple moving averages. Today’s retreat can be seen as an adjustment for the pair since the RSI reading was above 70, the overbought territory on the 4- hour chart. As the time of writing, the RSI has dropped below 70, signaling that the gain might be triggered again, heading to test the resistance at 111.65.

Resistance: 111.65

Support: 110.92, 110.475, 110.10

EURUSD (4- Hour Chart)

EURUSD hovers below 1.1850 after the release of the better than expected US Nonfarm Payrolls. On the 4- hour chart, EURUSD continues suffering from downside momentum, trading below the 20 and the 50 SMAs. The pair settles below the resistance level at 1.18615. On the downside, if the pair fails to bounce back, trading above 1.1837, then the pair will move towards the next major support at 1.1704, the lowest since April. On the upside, in case the attempt to trade stably above 1.1837, the pair will head towards the psychological resistance at 1.1900 and 1.1919.

Resistance: 1.1837, 1.1704

Support: 1.1919, 1.1985 

GBPUSD (4- Hour Chart)

GBPUSD bounces above 1.3800 amid the Delta virus variant worries. After falling below the support level at 1.3793 on the previous day, GBPUSD retreats above the level today at the time of writing. However, the outlook bias remains downside as the pair continues trading below the 20 and the 50 simple moving averages; at the same time, the pair continues trading near the descending trend line. All in all, the bearish momentum is still in control. To the upside, the pair will have a chance to turn bullish on the 4- hour chart if a break of 1.4007 is successful, where the 100 SMA is. The RSI is currently outside of the overbought territory, giving the pair rooms to extend further north.

Resistance: 1.4007

Support: 1.3793, 1.3675