Risk Off Prevails, AUD Down After AU Jobs Data

Equities were a sea of red yesterday, with the negative sentiment rolling into the Asian session today as Fed Chair Powell warned over an “extended period” of weak growth, and noted that negative interest rates are not something the Committee favors. In the FX world, the Aussie was among the main losers, coming under selling interest due to Australia’s employment data revealing a record jobs loss.

Investors’ Morale Remains Subdued

The strengthening of the dollar and the yen, combined with the weakness in the Aussie, suggests that risk appetite remained subdued for another day. Indeed, major EU and US indices were a sea of red yesterday, with the negative investor morale rolling into the Asian session today. Both Japan’s Nikkei 225 and China’s Shanghai Composite are down 1.34% and 0.71% respectively.

Following remarks by the leading US infectious disease expert Dr. Fauci that a coronavirus vaccine may take some time to come out to the market, and his warning that removing restrictions too quickly will put lives back at risk, Fed Chair Jerome Powell came to add to investors’ concerns. Speaking in a webcast, the Fed Chief warned over an “extended period” of weak growth and stagnant incomes due to the pandemic, while he made it clear that he and his colleagues are unlikely to push interest rates below zero. On top of that, global infections returned to acceleration mode the last couple of days, increasing even further fears over a second wave of the virus.

Our latest view was for further recovery in risk sentiment, but we’ve been highlighting the risk of reopening economies too quickly. Now, with expectations over a vaccine being ready soon diminishing, and with infections returning to acceleration mode, we prefer to sit to the sidelines and carefully monitor to see whether this will last for longer, or whether this was something temporary. Everyone is suggesting that a V-shape recovery in global economies is unlikely, but this is something already known, we believe. That’s why we will not call for deeper declines in the equity world, neither for decent rebounds though. We prefer to wait for the fog to clear out.

DJIA — Technical Outlook

A drop below the 22940 zone, which is marked by the lows of April 21 stand 22 nd, would confirm a forthcoming lower low and may open the door to some further declines. That’s when DJIA may drift to the 22370 obstacle, a break of which could set the stage for a move to the 21498 level, marked by the high of April 2 nd.

Alternatively, to examine higher areas, we would prefer to wait for the price to push above the April’s high first. If such a move occurs, more buyers may see this as a good opportunity to step in drive the index further north. The price could then test the 25769 obstacle, a break of which may send DJIA to the 27093 level, marked by the highest point of March.

AU Employment Data Disappoint

At their latest meeting, RBA policymakers announced that they have scaled back their QE purchases, but the disappointing jobs data may have raised speculation that they could stop doing so and start scaling QE back up. That said, our own view is that officials are aware that data for March and April may come on the soft side. If the spreading of the coronavirus returns to a slowdown mode and, at the same time, governments around the globe continue easing their restrictions, we think that the prospect of better days may allow them to continue reducing their bond purchases.

AUD/USD — Technical Outlook

A drop below the 0.6373 hurdle, which is the lower side of the aforementioned range, would confirm a forthcoming lower low and more sellers could join in. If so, the rate may slide further south, possibly overcoming the 0.6337 obstacle and targeting the 0.6283 zone, marked by the low of April 23 rd. Initially, if that area provides some good support, AUD/USD might rebound slightly. That said, if the pair remains below the lower bound of the range, this may attract the sellers, who could take advantage of the higher rate and drag AUD/USD down again. The rate might drop to the 0.6283 obstacle again, a break of which may set the stage for a move to the 0.6253 level, marked by the low of April 21 st.

In order to aim for higher levels, we will wait for the upper side of the range to get violated first. If the rate manages to climb above the 0.6570 barrier, such a move will confirm a forthcoming higher high, potentially allowing more bulls to run into the field. AUD/USD could then travel to the 0.6613 obstacle, a break of which might clear the way to the 0.6684 level, marked by the highest point of March.

As for Today’s Events

Tonight, during the Asian morning Friday, we have China’s fixed asset investment, industrial production and retail sales, all for April. Fixed asset investment is expected to have fallen at a slower pace than in March (-10.0% yoy from -16.1%), while industrial production is expected to have rebounded 1.5% yoy after sliding 1.1%. Retail sales are expected to have slid 7.5% yoy, after falling 15.8% in March.

As for the speakers, we have three on today’s agenda: BoC Governor Stephen Poloz, ECB Vice President Luis de Guindos and Minneapolis Fed President Neel Kashkari.


The content we produce does not constitute investment advice or investment recommendation (should not be considered as such) and does not in any way constitute an invitation to acquire any financial instrument or product. The Group of Companies of JFD, its affiliates, agents, directors, officers or employees are not liable for any damages that may be caused by individual comments or statements by JFD analysts and assumes no liability with respect to the completeness and correctness of the content presented. The investor is solely responsible for the risk of his investment decisions. Accordingly, you should seek, if you consider appropriate, relevant independent professional advice on the investment considered. The analyses and comments presented do not include any consideration of your personal investment objectives, financial circumstances or needs. The content has not been prepared in accordance with the legal requirements for financial analyses and must therefore be viewed by the reader as marketing information. JFD prohibits the duplication or publication without explicit approval.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 83% of retail investor accounts lose money when trading CFDs with the Company. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Please read the full Risk Disclosure.

Copyright 2020 JFD Group Ltd.

Originally published at https://www.jfdbank.com on May 14, 2020.



JFD is a leading Group of Companies offering financial and investment services and activities.

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store
JFD Brokers

JFD is a leading Group of Companies offering financial and investment services and activities.