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FXStreet reports that strategists at TD Securities apprise that gold is oscillating around the $1785 level and remains on the cusp for a breakout above the $1800 mark which is proving to be a tough barrier but that should be surpassed due to higher inflation expectations.

“Gold continues to trade on the cusp of a breakout above the $1800/oz level but has failed to do so just yet. With a slight risk-off tone to start the morning, and with the increase in inflation expectations pausing in line with risk appetite, the level has proved to offer fairly strong resistance.” 

“Despite the short-term noise, we believe gold is the midst of a regime shift, transitioning from trading as a safe-haven asset to an inflation-hedge product. Long-term inflation expectations are rising in sync with risk-on behavior, while rates-vol remains deeply constrained amid uber-supportive policy, fueling a process that weighs on real yields.”

“With 10y breakevens continuing to print new post-Covid highs, the normalization in inflation expectations may remain a powerful driver lifting gold prices deeper into $1,800/oz territory.” 

The Ivey Business School Purchasing Managers Index (PMI), measuring Canada’s economic activity, increased to 58.2 in June from 39.1 in May. That was the highest level since November 2019.

A reading above 50 signals expansion, while a reading below 50 indicates contraction.

Within sub-indexes, the employment measure climbed to 52.8 in May from 41.9 in the previous month, while the inventories indicator jumped to 61.8 from 46.8, the supplier deliveries gauge surged to 53.4 from 37.7 and the prices index increased to 56.4 from 54.9. 

The Job Openings and Labor Turnover Survey (JOLTS) published by the Labor Department on Tuesday revealed an 8.0 percent m-o-m surge in the U.S. job openings in May after a revised 16.9 percent m-o-m decline in April (originally a 16.1 percent m-o-m decrease).

According to the report, employers posted 5.397 million job openings in May compared to the April figure of 4.996 million (revised from 5.046 million in the original estimate) and economists’ expectations of 4.850 million. The job openings rate was 3.9 percent in May, down from an unrevised 3.7 percent in the prior month. The report showed that job openings rose in accommodation and food services (+196,000 jobs), retail trade (+147,000), and construction (+118,000), but decreased in information (-55,000), federal government (-37,000), and educational services (-27,000).

Meanwhile, the number of hires jumped by 60.3 percent m-o-m to 6.487 million in May from a revised 4.047 million in April. This was the largest monthly increase of hires since the series began. The hiring rate increased to 4.9 percent in May from a revised 3.1 percent in April. The hires level increased for total private (+2,432,000) and was little changed for government. Within industries, hires rose in a number of industries, with the greatest rise in accommodation and food services (+763,000), followed by health care and social assistance (+479,000), and construction (+427,000).

The separation rate in May was 4.145 million or 3.1 percent, compared to 9.975 million or 7.6 percent in April. Within separations, the quits rate was 1.6 percent (+0.2 pp m-o-m), and the layoffs rate was 1.4 percent (-4.5 pp m-o-m).

The improvements in the labor market reflected a limited resumption of economic activity that had been curtailed in March and April due to the coronavirus (COVID-19) pandemic and efforts to contain it, the report noted.

• Strain in housing market is not as severe as expected
• Much of the U.S. economy is based on confidence
• Seeing signals of increased business and consumer concerns
• Businesses are examining ways to automate and reduce workers
• Businesses are getting nervous again and worried that virus has been going on longer than they had planned for

FXStreet notes that Shanghai Composite finally paused on Tuesday as the market closed only marginally higher. Nevertheless, economists at Credit Suisse maintain a bullish outlook with next resistance at 3400/07 before the important medium-term resistance at 3587.

“The market holds a long list of supportive technical factors which keeps us biased higher, including very strong momentum, with the daily RSI at the highest level since 2014, suggesting a real possibility that we are moving into a ‘bubble’ phase similar to that 2014 blowup, as well as the surge in volume, which is also at the highest levels since 2014/15.”

“Next minor resistance is seen at the 3400/07 psychological barrier which stalled the market on Tuesday, then the 38.2% retracement of the 2015/2019 fall at 3485/87. Given the size of the base though, a test of the 3587 high and eventually beyond here seems likely.”

“Near-term support moves higher to 3337/33 gap and the risks stay directly higher whilst above here. Below here would suggest a correction back to the 3188 gap, which we would look to floor the market if reached.”

FXStreet notes that AUD/USD stays compressed around 0.6941, down 0.46% on a day, after the Reserve Bank of Australia (RBA) held benchmark interest rate unchanged near 0.25% while citing economies fears in the rate statement. Economists at Westpac expect the forehanded tone to cap any potential AUD/USD move above 0.70.

“In the July statement, the RBA did note that ‘conditions have … stabilised recently and the downturn has been less severe than earlier expected’; ‘the decline in hours worked was considerably smaller than in April’; ‘there has also been a pick-up in retail spending in response to the decline in infections and the easing of restrictions’.”

“They went on to note that ‘uncertainty about the health situation is making many households and businesses cautious’; ‘the pandemic is also prompting many firms to reconsider their business models’; and ‘as some businesses rehire workers as demand returns, others are restructuring their operations’ all of which adds to the sense of caution within the statement, especially as we start to reverse re-openings in some states.”

“We would expect the more cautious theme to cap the aussie close to 0.70 - certainly the language is less supportive this month versus last. However, yet again, there was no mention of the currency in today’s policy statement.”

EUR traded mixed against its major counterparts in the European session on Tuesday after the European Commission slashed its economic forecasts and Germany posted weaker-than-expected industrial output data for May.  

While the European single currency fell against USD, GBP and CHF, it rose against the rest of major rivals.

The European Commission estimated the Eurozone's GDP would fall by 8.7 percent in 2020, a deeper decline than the 7.7 percent forecast three months ago, as lockdowns intended to contain the spread of the novel coronavirus are eased more gradually than anticipated. In addition, it lowered its forecast for a 2021 rebound to 6.1 percent from 6.3 percent previously, citing the "still rising" rate of global infections.

According to the Johns Hopkins Center for Systems Science and Engineering, the total number of confirmed global cases of the COVID-19 rose to 11,645,109, with the U.S. recording 2,938,625 coronavirus cases, the most in the world. Growing coronavirus infections triggered a reintroduction of regional lockdown measures in some countries, hurting investor confidence in a fast recovery of the global economy from COVID-19 pandemic and curbing risk appetites as well.

Germany's Federal Statistical Office (Destatis) reported on Tuesday the country’s industrial production surged 7.8 percent m-o-m in May after a record 17.5 percent m-o-m plunge in the prior month. Economists had forecast a 10.0 percent climb in May. The major contributors to the May production jump were the higher output of capital goods (+27.6 percent m-o-m) and consumer goods (+1.4 percent m-o-m) as well as increased energy production (+1.7 percent m-o-m) and construction output (+0.5 percent m-o-m). At the same time, the production of intermediate goods (-0.1 percent m-o-m) edged down. On a yearly basis, German industrial output declined 19.3 percent, following a 25.0 percent decrease in April.

FXStreet reports that analysts at Credit Suisse note that S&P 500 strength has extended to next flagged resistance at 3190/82 which is expected to cap near-term to maintain a high-level consolidation range with support seen at 3155.

“The S&P 500 has extended its recovery to just shy of our next flagged resistance from the top of the price gap from early June and potential downtrend from March at 3190/92 and we continue to look for this to cap for now for a fresh move lower in the broader high-level consolidation range.”

“Support is seen at 3165 initially, then 3155, below which is needed to ease the immediate upside bias for a fall back to the lower end of the price gap from yesterday at 3130/25, with fresh buyers expected here. A break can see a retest of the 13-day average, currently at 3105.” 

“Above 3192 can see the risk stay directly higher with resistance seen next at the 3223/33 June highs. Above here can open the door to a challenge on what we see as more important and tougher resistance from the February ‘pandemic’ gap, seen starting at 3260.”

• There will be meetings between the UK and EU negotiating teams throughout July

FXStreet reports that economists at Charles Schwab have been able to make some sense of global earnings and stock market performance, re-openings and relative stock market performance across countries and they expect to make sense of the dividend divide fairly soon.

“Although the dollar amount of analysts’ estimates of the next 12 months earnings per share for MSCI World Index companies has been slowly rising over the past month, it’s hard to have a high degree of confidence in the magnitude of earnings, given all the uncertainty. Instead, it is the direction of analysts’ changes which becomes important to the direction of the stock market. A worsening outlook on the pace or sustainability of the global recovery from COVID-19 would likely affect both the outlook for earnings and the stock market.”

“Restaurants in Ireland finally reopened to seated dinners on June 29, accounting for the rise in diners in the chart above. Meanwhile, in Australia, restaurants in the state of Victoria (home to the city of Melbourne) were re-closed on July 1 until July 29, after an outbreak of COVID-19. We will be watching to see if this begins to be reflected in the performance of the Irish and Australian stock markets this month.”

“Stock prices in the major indices have recovered most of their losses so far this year, but dividends have not. On this issue, market and analysts are seeing things very differently. While not expecting a complete recovery for dividends per share next year, the analysts’ consensus forecast for dividends per share in 2021 for these indexes are even higher than the current market forecast. It makes little sense to see such a big gap between the market and analyst estimates for the return of dividends. [...] The European Central Bank’s Single Supervisory Mechanism has said it may provide clarity on its dividend ban in July, which could offer more visibility on the outlook for dividends.”

FXStreet notes that EUR/GBP has held support at 0.9000 as expected and analysts at Credit Suisse look for the trend to turn higher again for a retest of resistance at 0.9184. 

“EUR/GBP has rallied strongly as expected after holding key price support at 0.9000, now also its uptrend from February and with a bull ‘triangle’ still in place and with our core bias for the EUR outright higher, we maintain our core positive outlook.” 

“Resistance stays seen at 0.9082 initially, then 0.9146/48, above which can see a retest of 0.9178/84 – the (late) June high and 61.8% retracement of the March/April collapse. Beyond here in due course can see resistance next at 0.9277, then the 78.6% retracement at 0.9323. Beyond here can eventually expose the 0.9501 high for the year from March.” 

“Near-term support moves to 0.9029, with 0.9001/00 ideally continuing to hold. Below would see the ‘triangle’ negated to see the broader risk turn sideways again with support seen next at 0.8966, then 0.8924.”

FXStreet notes that USD/CHF nearly reached the 0.9376 June low yesterday before stabilizing at 0.9384. Today, the pair is edging higher and trades near-daily highs around 0.9450, up 0.30% on a day. Nonetheless, Axel Rudolph, Senior FICC Technical Analyst at Commerzbank, notes that USD/CHF will retain a bearish bias while below the 0.9491-mark.

“While capped by the two-month resistance line at 0.9491 a negative bias should persist, however, with our downside target remaining the 0.9376 June 11 low which is the last defence for 0.9184 the March low.” 

“Further resistance can be spotted at the 0.9532/53 mid- and late June highs. These would need to be overcome for current downside pressure to be alleviated and for a recovery to the five-month downtrend line at 0.9637 to become possible.”

FXStreet reports that the recent downgrade by Fitch for Government of Canada debt from AAA to AA+ coupled with dampening demand recovery for oil are likely to foster a further loonie depreciation. Therefore, economists at the National Bank of Canada target USD/CAD at 1.38 in the short-term.

“It is unfortunate that the Fitch downgrade occurred at a time when of a potential of dampening demand for oil because of tightening lockdown restrictions in some large US states because of Covid-19 cases.”

“We cannot ignore the fact that despite the new Canada-US-Mexico trade agreement, the US is contemplating imposing tariffs on Canadian aluminum.”

“We set our three-month target for the USD/CAD pair at 1.38.”

According to a new OECD report and unemployment statistics released today, the Covid-19 pandemic is turning into a jobs crisis far worse than the 2008 crisis. Women, young people and workers on low incomes are being hit hardest.

The OECD unemployment rate edged down to 8.4% in May 2020, after an unprecedented increase of 3.0 percentage points in April, to 8.5%, the highest unemployment rate in a decade. In February 2020, it was at 5.2%. The number of unemployed people in the OECD area stood at 54.5 million in May. The lack of variation between April and May is the result of contrasting trends. On the one hand, in the United States, as the economy started to re-open, many furloughed workers went back to work, even as other temporary layoffs became permanent. On the other hand, unemployment is increasing or risks becoming entrenched in many other countries.

The OECD Employment Outlook 2020 says that, even in the more optimistic scenario for the evolution of the pandemic, the OECD-wide unemployment rate may reach 9.4% in the fourth quarter of 2020, exceeding all the peaks since the Great Depression. Average employment in 2020 is projected to be between 4.1% and 5% lower than in 2019. The share of people in work is expected still to be below pre-crisis levels even at the end of 2021.

Reuters reports that a gauge of British labour costs rose at its fastest rate since 2006 in the first three months of this year, reflecting the early days of the government's furlough scheme, the Office for National Statistics said on Tuesday.

Unit labour costs jumped by 6.2% compared with the same period last year, the ONS said.

Output per worker fell by 3.1%, reflecting the impact of the government's job retention scheme, under which furloughed workers still count as employed for statistical purposes.

Output per hour, the main gauge of Britain's productivity was down 0.6% compared with the first three months of 2019.

FXStreet reports that USD/CNH trades around 7.02 on Tuesday after slipping below the 7.04 mark. Terence Wu, an FX strategist at OCBC Bank, now expects the pair to consolidate in the 7.00 vicinity. 

“State media in China is feeding the equities, dragging the rest of North Asian bourses higher. This further supports the risk-on sentiment across Asia.” 

“The USD/CNH broke through the floor at 7.0400/500, falling aggressively to 7.0100. For now, we expect some consolidation around the 7.0000 handle due to profit-taking.”

“Overall, we see this as a catch-up decline for the USD/CNH, after the RMB’s underperformance in the past weeks.”

Reuters reports that China's foreign exchange reserves rose less than expected in June as the yuan strengthened and global asset prices rebounded amid a recovery in economic sentiment.

The country's foreign exchange reserves - the world's largest - rose $10.64 billion (£8.52 billion) in June to $3.112 trillion, central bank data showed on Tuesday.

Economists polled by Reuters had expected the country's reserves to rise by $18.31 billion to $3.120 trillion.

Foreign inflows into Chinese stocks and bonds have picked up recently as investors bet on an economic rebound. Strict capital controls have also largely helped China keep outflows under control over the past year despite the shock from the coronavirus outbreak, a prolonged trade war with the United States and weakening economic growth.

The yuan rose 0.99% against the dollar in June, while the dollar fell about 0.97% in the same month against a basket of other major currencies.

China held 62.64 million fine troy ounces of gold at the end of June, unchanged from 62.64 million ounces at end-May.

The value of China's gold reserves rose to $110.76 billion at the end of June from $108.29 billion at end-May.

• EU now sees 2020 GDP at -8.7% vs -7.7% back in the May forecast

• Euro area economy probably shrank by 13.5% in Q2

• There are 'several' risks to the economic outlook, tilted to the downside

• Economic recovery will be uneven across member states

• Euro area economic divergences are 'more pronounced'

• German economy likely to shrink by 6.3% in 2020

• Spain, France, Italy economies likely to shrink by more than 10% in 2020

Bloomberg reports that economic activity in parts of the the U.S. is showing signs of leveling off amid a resurgence in coronavirus cases, according to Federal Reserve Bank of Atlanta President Raphael Bostic.

“There are a couple of things that we are seeing and some of them are troubling and might suggest that the trajectory of this recovery is going to be a bit bumpier than it might otherwise,” Bostic said in an interview with the Financial Times. “We’re watching this very closely, trying to understand exactly what’s happening.”

The U.S. has seen a pickup in coronavirus cases in recent weeks, forcing some states to re-impose restrictions and threatening the recovery in the world’s largest economy. The Atlanta Fed covers a region that includes some the worst-hit areas, such as Florida.

Bostic suggested that more economic support for small businesses may be needed, saying that “the longer this goes without them getting relief, the more likely that they’re not going to be able to survive, and so all the jobs associated with that will move from the temporary column into permanent column and that will be extremely painful.”

He declined to be drawn on the prospect of more monetary stimulus from the Fed, saying it’s unclear how the economy is being transformed.

“I do worry that circumstances are going to be very different in the future than they are now,” he said in the interview. “I want to be careful about being too presumptuous about where we’re going to be. All this uncertainty is definitely in my mind.”

FXStreet reports that economists at HSBC look at the cyclical, structural and political arguments for a material decline in the USD but do not find any evidence to be convincing enough to suggest an imminent USD bear market.

“Cyclical: The USD is no longer a high yielder in G10 and the Fed is significantly increasing USD liquidity. Investors will rebalance away from being overweight USD assets due to slowing US growth. Our counter-argument: The USD is in the middle of the pack in G10 yields and is not set to become a funding currency. Other central banks are expanding their balance sheets even faster than the Fed. Our economists forecast very little growth differentiation in G10 economies.”

“Structural: The US twin deficits (which consist of both current account deficit and fiscal deficit) are widening rapidly to record levels. Our counter-argument: Twin deficits are nothing new in the US and the USD has rallied in the face of these pressures before. The question is whether investors are willing to fund the deficit. We believe they are, assuming US growth does not substantially underperform and the USD does not lose its 'safe haven'/reserve currency status.”

“Political: The USD's reserve status is diminishing and political issues in the US point to the ongoing erosion of the USD as a 'safe haven' currency. Our counter-argument: While the portion of reserves held in the USD has declined, this long-term trend does not drive USD performance. Right now, there is no alternative to the USD in terms of liquidity or usability. Other currencies – such as the EUR and the RMB – may gain more share over time, but this is not a strong argument for an imminent USD bear market.”

“To be clear, we are not looking for a stronger USD. We expect greater differentiation against the USD in G10 FX, based on fiscal firepower and relative balance sheet expansions, with the AUD, and the NZD outperforming the EUR, the GBP and the CAD. In this world, and for the foreseeable future, the USD remains resilient but without a clear directional trend.”

Bloomberg reports that stock volatility is dropping toward levels that could further encourage U.S. equity bulls even as warnings about complacency continue to hang over the rally from March’s lows.

The Cboe Volatility Index, a measure of implied equity swings, is now one-third the level reached at the height of the Covid-19 market uncertainty. A move lower would be a bullish sign for U.S. stocks, according to Evercore ISI. But Mizuho Bank Ltd. says it’s also possible investors don’t fully appreciate the chances of sharp swings in markets awash with stimulus.

The VIX, or “fear gauge” as it’s often called, closed Monday at 27.9, higher than its lifetime average of 19.4 but well below a peak in mid-March above 82. A fall to 26 would be “huge for risk and a break below that level will unlock the door to 3,500 on the S&P,” Evercore technical strategist Rich Ross wrote in a note.

The S&P 500 is on a five-day winning streak and closed 1.6% higher Monday just below 3,180.

During today's Asian trading, the US dollar rose against most currencies. Traders continue to closely monitor the situation with coronavirus in the United States and other countries. Fears of a possible return of restrictive measures in the event of a second wave of pandemics are curbing risk appetite in financial markets.

New COVID-19 outbreaks are reported in various regions of the world - from Japan to Iran and Australia, and in the United States, the number of infected since the beginning of the pandemic has exceeded 3 million. A number of American States, including California, Florida and Texas, were forced to return some of the previously canceled restrictive measures.

At the same time, investors are aware that the current situation in the US economy, although it remains difficult, is not as severe as could be expected in March or April. The market is beginning to understand that many American companies can expect better results, experts say.

The Australian dollar is getting cheaper. The Reserve Bank of Australia (RBA) did not change the key parameters of monetary policy at the end of the meeting on Tuesday. The regulator kept the base interest rate at a record low of 0.25% per annum, and the target yield of three-year government bonds-also at 0.25%. The Central Bank notes that the country's economy is "experiencing the greatest decline since the 1930s", but " conditions have recently stabilized, and the decline was not as significant as previously expected."

The ICE index, which tracks the dynamics of the us dollar against six currencies (euro, swiss franc, yen, canadian dollar, pound sterling and swedish krona), rose by 0.17%.

FXStreet reports that NZD/USD could extend the upside to the 0.6650 once/if 0.6610 is cleared, suggested FX Strategists at UOB Group.

24-hour view: “Yesterday, we expected NZD to ‘edge higher’ but were of the view that ‘0.6585 is not expected to come into the picture’. Our view was not wrong as NZD rose to 0.6565 before ending the day on a firm note at 0.6558 (+0.23%). Upward momentum has improved, albeit not by much. From here, there is room for NZD to move above 0.6585 but the chance of a sustained rise above this level is not high (next resistance is at 0.6610). Support is at 0.6540 followed by 0.6520.”

Next 1-3 weeks: “We highlighted last Friday (03 Jul, spot at 0.6505) that NZD is ‘likely to trade with an upside bias’ but we were of the view that ‘prospect for a break of 0.6585 is not high’. NZD rose to a high of 0.6565 yesterday (06 Jul) before ending the day on a firm note at 0.6558 (+0.23%). Upward momentum has improved slightly and while a move above 0.6585 would not be surprising, NZD has to close above 0.6610 in order to indicate that it is ready to move towards 0.6650 (and possibly beyond this level). The probability for such a scenario are not high for now but would remain intact as long as the ‘strong support’ at 0.6480 is not taken out (level was previously at 0.6440).”

CNBC reports that global equities will be roughly unchanged from their current position this time next year as bullish and bearish forces cancel each other out, according to Citi strategists.

In its quarterly global equity report, the bank’s strategists said they would not be chasing markets higher from current levels, but would prefer to wait for the next dip. Citi remains overweight in U.S. and emerging-market equities and has retained a “defensive tilt” to its sector strategy. 

Defensive stocks are those that typically provide consistent dividends to shareholders and relatively stable earnings, irrespective of the health of the broader economy.

“Global central banks are likely to buy $6 trillion of financial assets over the next 12 months, over twice previous peaks,” Citi analysts said in the note. 

Citi has compiled its own checklist of 18 items to identify if global equities are about to enter a bear market period.

“The global economy is showing further signs of recovery from the lockdown. Our Bear Market Checklist still shows only 6.5/18 red flags,” the analysts said.

However, they cited the continued vulnerability of the global economy to rising Covid-19 infections and excessive earnings optimism as downside risks that will likely cancel the optimism stemming from a potential recovery and massive central bank stimulus.

“We think the bottom-up global EPS (earnings per share) consensus for end-2021 is 30% too high, suggesting that global equities are actually trading on a demanding 24x P/E (price-earnings ratio), not a more reasonable 17x,” the note added.

The closely watched P/E ratio is a company’s current share price divided by its earnings per share.

According to the report from Federal Statistical Office (Destatis), in May 2020, production in industry was up by 7.8% on the previous month on a price, seasonally and calendar adjusted basis. Economists had expected a 10.0% increase. Compared with May 2019, the decrease in calendar adjusted production in industry amounted to 19.3%.

In May 2020, production in industry excluding energy and construction was up by 10.3%. Within industry, the production of intermediate goods showed a decrease by 0.1%. The production of consumer goods increased by 1.4% and the production of capital goods by 27.6%. Outside industry, energy production was up by 1.7% in May 2020 and the production in construction increased by 0.5%.

The production in the automotive industry increased markedly in May 2020, after a very low level in April 2020. However, it was still by just under 50% lower than in February 2020.

In April 2020, the corrected figure shows the production in industry a decrease of 17.5% from (primary -17.9%) from March 2020.

EUR/USD

Resistance levels (open interest**, contracts)

$1.1435 (1841)

$1.1409 (1785)

$1.1372 (1448)

Price at time of writing this review: $1.1305

Support levels (open interest**, contracts):

$1.1224 (402)

$1.1195 (1062)

$1.1161 (1591)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date August, 7 is 47747 contracts (according to data from July, 6) with the maximum number of contracts with strike price $1,1400 (4640);

GBP/USD

Resistance levels (open interest**, contracts)

$1.2743 (1211)

$1.2674 (983)

$1.2619 (635)

Price at time of writing this review: $1.2494

Support levels (open interest**, contracts):

$1.2356 (965)

$1.2325 (1397)

$1.2290 (904)

Comments:

- Overall open interest on the CALL options with the expiration date August, 7 is 16020 contracts, with the maximum number of contracts with strike price $1,3000 (2987);

- Overall open interest on the PUT options with the expiration date August, 7 is 17229 contracts, with the maximum number of contracts with strike price $1,2400 (1397);

- The ratio of PUT/CALL was 1.08 versus 1.01 from the previous trading day according to data from July, 6

* - The Chicago Mercantile Exchange bulletin (CME) is used for the calculation.

** - Open interest takes into account the total number of option contracts that are open at the moment.