Gold Surges Above $2000, NZ Employment and Services PMIs
It was a rather mixed day for the equity markets around the world. The European bourses ended their trading sessions almost unchanged. Yesterday, the focus had fallen on gold, which hit a new all-time high and reached a historic $2000 mark and kept on pushing further north. During the early hours of the Asian morning, New Zealand released its jobs numbers for Q2. Today will also be a service PMI day, with various countries across the globe delivering their data on this indicator.
Equities Gain Slightly, Gold Continues To Hit Record Highs
It was a rather mixed day for the equity markets around the world. The European bourses ended their trading sessions almost unchanged. The German Dax closed slightly in the red, with a small 0.36% loss, whereas the FTSE 100, CAC 40 and IBEX 35 ended their trading sessions with modest gains of +0.05%, +0.28% and +0.67% respectively. The best performer was the Italian FTSE MIB, gaining 1.21%. The US indices also managed to close their trading sessions in the green. In fact, the Nasdaq Composite and Nasdaq 100 were both able to hit new all-time highs.
That said, the fact that the indices were struggling to go for a firmer upmove seems to be raising concerns among potential new investors. Some believe that the market may be overbought again and is in need of another correction. However, we have still not seen any confirmation for a possible correction lower, which means that the market could be taking a temporary pause before another potential uprise. Risk assets, such as equities, will remain vulnerable to the situation surrounding the coronavirus. Yesterday’s surge in the global total infections number might have kept investors from jumping in too heavily into risky assets.
Yesterday, the focus had fallen on gold, which hit a new all-time high and reached a historic $2000 mark and kept on pushing further north. This morning we saw the precious metal hitting the 2031-dollar mark.It looks like the price of the precious metal continues to climb higher together with the equity markets, which some see as a worrying sign. It could be that the yellow metal is losing its status of a safe-haven, as normally the price of gold tends to rise, when risk assets fall under selling pressure. But this time, due to a weaker dollar, commodities like gold and silver are attracting much more attention at a much earlier stage. This, of course, makes investors worry, in terms of how far could the price of gold move in the upwards direction and will it start reversing lower, when equities turn south? Given that the commodity is hitting new highs almost every day, it might a be a difficult task to find a ceiling for the price, at the moment. But gold’s journey higher could quickly reverse and the precious metal might drift to the downside, if the US dollar starts picking up some buying interest.
New Zealand Job Numbers
During the early hours of the Asian morning, New Zealand released its jobs numbers for Q2. The data showed a significant decline in the unemployment rate, which came out at 4.0%, when the expectation was at 5.8%. However, the actual reading was only better by two tenths of a percent from the previous number. Nevertheless, NZD traders took that as a positive and kept the currency from moving lower against its major counterparts. New Zealand’s employment change figure on a QoQ basis came out at -0.4%, which is much better than the initially expected -2.0%. That said, the number was still not better than the previous +0.7%. The participation rate showed fractionally below the expected 69.80%, at 69.70%. Although the figures look quite positive, it might be that the initial forecasts were too pessimistic, as it seems that the actual readings have beaten their expectations quite easily. That could be the case why we are not seeing a bigger jump in NZD against other currencies.
Services PMIs From Different Nations Are In The Spotlight
Today will also be a service PMI day, with various countries across the globe delivering their data on this indicator. But some nations, like Australia, Japan and China have already showed us how their service sectors performed in July. Unfortunately for Australia, their service PMI fell slightly below forecast, but stayed well above the previous reading. The actual number came out 58.2, when the expectation was for a 58.5. The previous reading was at 53.1. Japan showed a good result, beating both the forecast and the previous number, coming out at 45.4. However, that still doesn’t help much, as the number remains in contraction zone.
China’s composite and Caixin services PMI numbers released its figures for the month of July. The composite PMI came out at 54.5, which is better than the previous figure, whereas the Caixin service PMI showed up at 54.1. That number is below the previous 58.4.
Apart from some individual European member states, the eurozone as a whole will also deliver its composite and services PMIs for July. Currently, the expectations are that the sectors have moved out of the contractionary territory into the expansionary one, with the composite reading believed to show up at 54.8 and the services figure forecasted to appear at 55.1. If so, euro traders may take it a good sign, if the actual numbers show up better than expected. However, if the actual readings are above 50, but below forecast, that might cause EUR to retrace a bit lower against USD, which could be seen as a corrective move, following a strong rally during last week.
US services PMI is expected to have risen from the previous 47.9 to 49.6. Although it may be seen as a good result, still, that would keep the sector in contractionary zone, below 50. The ISM non-manufacturing reading is forecast to have declined somewhat, going from 57.1 to 55.0. Nevertheless, that would still keep the figure in expansion zone. If the actual readings of the indicators discussed above come out as expected, this might cause a slight negative effect on the US dollar.
Later, the light will fall on the US data, in particular on the country’s ADP non-farm employment change, services PMI, ISM non-manufacturing PMI and crude oil inventories. The first one is sometimes used as gauge for the upcoming US non-farm payroll number, which is set to be delivered on Friday. The ADP reading is expected to have declined to 1500k from the previous 2369k. If so, then investors might assume that Friday’s payroll number could come out on the lower side as well. That said, let’s not forget that one should not solely rely on this theory, as history shows that the two data sets might not always move hand in hand in the same direction.
FTSE 100 — Technical Analysis
After a strong reversal to the upside on Monday, the FTSE 100 continues with its path of recovery. This morning, the index is seen breaking a short-term tentative downside resistance line drawn from the high of July 23 rd. Although everything looks quite positive right now in regards to the near-term outlook, we would also prefer to wait for a break above the 6080 barrier first, before examining larger extensions to the upside.
A strong move above the aforementioned 6080 hurdle, which is marked near the lows of July 1 st, 13 th, 27 thand 18 th, could attract more buying interest. The price may continue to accelerate, potentially reaching the 6136 area, marked by an intraday swing low of July 30 th. The index may stall there for a bit, as the acceleration might also get halted by the 200-day EMA. However, if the buyers are still feeling comfortable, they could still raise the FTSE 100 above the 6136 obstacle and the 200-day EMA and target the 6163 level, marked near the highs of July 28 thand 29 th.
Alternatively, if the prices suddenly falls back below the 6023 hurdle, marked by today’s current low, that would also place the FTSE 100 below the previously-mentioned downside line. Such a move could be seen as a bearish one and may invite a few extra sellers into the game. The index might drift to the 5984 obstacle, a break of which could clear the way to the 5928 level, marked by an intraday swing high of August 3 rd.
NZD/USD — Technical Outlook
At the start of the week, NZD/USD found good support near an area, at 0.6589, which previously was seen as a strong resistance. The pair then rebounded and is now showing signs of a possible continuation further north. At the same time, the rate is now trading above a short-term tentative upside support line drawn from the low of June 30 th. For now, we will take a bullish approach and aim a bit higher.
A push above the current high of today, near the 0.6650 hurdle, may clear the path to some larger extensions higher, as more buyers could get a bit more comfortable. NZD/USD may then drift to the 0.6679 zone, which is marked near the high of July 29 thand near an intraday swing low of July 31 st. Initially, the pair might get halted there, but if the bulls are still feeling confident, a break of that zone could set the stage for a further advance. That’s when we will aim for the 0.6703 area, or the 0.6715 level, marked by the highs of July 28 thand 31 strespectively.
In order to shift our attention to some lower areas, we would prefer to wait for a break of the aforementioned upside line and a rate-drop below the previously-discussed 0.6589 hurdle first. If such a move occurs, the bulls might get spooked from the field temporarily, causing the pair to slide to the 0.6575 obstacle, or even the 0.6559 zone, marked by the low of July 21 st, which also coincides with the 200-day EMA. NZD/USD may stall there for a bit, or even rebound somewhat. However, if the rate remains below the previously-mentioned 0.6589 hurdle, the bear may take charge again. If this time the 0.6559 area breaks, this would confirm another forthcoming lower low and the next potential support level could be at 0.6526 , marked by the low of July 16 th.
As for the rest of today’s events
Sweden will also be one of those countries, which will deliver its services PMI reading, which currently has no forecast available. Instead, the spotlight will fall on the country’s GDP flash growth rates on a QoQ and YoY basis. Currently the expectation is to see better than the previous numbers, going from 49.2 to 52.9.
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Originally published at https://www.jfdbank.com on August 5, 2020.