June 9, 2021

Daily Market Analysis

Market Focus

US equity market was quiet on Tuesday as investors are waiting for the big CPI release on Thursday. The three big equity indices moved less than 0.1% at the end of the day. Meanwhile, the 10-year Treasury yield fell to the lowest in a month, trading at 1.536%.

The economist who helped to shape Federal Reserve’s long-run inflation expectations says central bank needs to get their hands on cutting back its massive bond-purchase program. Brian Sack, former head of Fed Board of Governors two decades ago, says the so called 5Y 5Y forward breakeven inflation rate climbed to a level where further increases would be problematics for the central bank. The mentioned rate reached a seven-year high last month of 2.55%, which implies market participants expect inflation to be 2.55% in the next 5 years on average. Debates over inflation is heating up with economists like Lawrence Summers warns Biden’s infrastructure plan will overheat US economy, but Treasury Secretary Janet Yellen suggests the package wouldn’t be enough to cause an inflation over-shoot.

US is easing its travel advisories on many nations, including Canada, France, and Germany. The CDC lowered 61 countries from a ‘level 4’ discouraged all travel to a ‘level 3’ recommending travel under full vaccination, and 50 countries and territories from ‘level 2’ to ‘level 1’.

The Internal Revenue Service (IRS) asks Congress to authorize data collection on cryptocurrency transactions valued over $10,000. IRS’s Chief Charles Rettig estimates around $1 trillion tax generated in crypto space escapes from IRS each year. Perhaps a much urgent need for the data probing power is to crack down illicit usage of these digital currencies, which have been demanded increasingly by perpetrators of ransomware attacks on corporate computer networks.

Main Pairs Movement:

Moves in the forex space was dollar driven, with the dollar up and other currencies down. Volatility is extremely depressed as traders await for the Federal Reserve to throw something new at the market, until then, most pairs will stay in tight range.

Yen is the worst performer among the G-7 group so far this year. It depreciated 6% against the US dollar, 6.5% against Aussie, 7% against Kiwi, and 11.3% against the Canadian dollar. With developed economies racing to completely eliminate COVID-19, Japan is lagging significantly behind. ‘Only 2.8% of the population has received at least one vaccine dose, and just 1% have had both shots of vaccine,’ according to Forbes. Japanese government is having a hard time carrying out their inoculation plan due to wide distrust of immunizations, which have been rooted within the country for decades. That being said, we will not be surprised to see further extension of emergency lockdowns and a postpone to summer Olympic game. As domestic recession lingers, Japanese investors are set to expand their search for yields abroad, and companies seek expansions in merger and acquisition overseas. These money outflows could further weigh down on the Japanese Yen.

Technical Analysis:

EURUSD (Daily Chart)

EURUSD broke a two-month ascending trendline from downward, and the move was triggered by upbeat ADP data released last Thursday. The fact that the miss in NFP itself did not put the Euro back above the trendline showed traders are perhaps leaning towards a dollar favourable environment in coming weeks. As of current, price is capped by 23.6% Fibonacci level at 1.22, which belongs to a broader consolidation range between 1.225 and 1.217. We expect trading to be sideways until Thursday’s US CPI tells otherwise.

Resistance: 1.22, 1.235, 1.246

Support: 1.21, 1.203

EURCHF (Daily Chart)

EURCHF is well placed within a downward tunnel since March. After rejected by big 1.1 hurdle, price now looks to contest another round number of 1.09, which marks the 28.2% Fibonacci level. We saw this pair had a decent W-formation, but failed to extend above 1.1, which prompted sell orders to pile in and validated a bullish reversal was immaterial. Bears should still be dominant in the medium term. Further on the downside, EURCHF could hit the lower-bound of a descending tunnel if 1.1 is breached.

Resistance: 1.1, 1.112

Support: 1.09, 1.074, 1.067

AUDNZD (Daily Chart)

AUDNZD recovered most of its loss from previous RBNZ’s hawkish shock. The antipodean pair managed to regain 1.072 on Tuesday. We thought defense at 1.072 could be stronger given the confluence of SMA20 and a horizontal resistance line. That being said, it is not far away from a previous trendline, which now could act as a dynamic resistance. We are sticking with our bearish view on this pair given a relatively more hawkish stance from RBNZ and better economic prospect in New Zealand. The jobless rate in New Zealand was 4.7% compared to 5.5% in Australia.

Resistance: 1.08, 1.1

Support: 1.065, 1.052, 1.04

Economic Data