USD/JPY is expected to continue its downside movement.On Friday, US stock indices posted only modest losses although the May jobs report came out as much weaker-than-expected. The Dow Jones Industrial Average declined 0.2% to 17,807, the S&P 500 fell 0.3% to 2,099, while the Nasdaq Composite was down 0.6% to 4,942. Financial shares took the biggest hit, while utilities attracted bids.
The market was stunned by the US Labor Department's report that nonfarm payrolls rose just 38K in May (vs +158K expected), the weakest growth since September 2010. And payrolls in April were revised down to +123K from +160K previously estimated. The jobless rate dropped to 4.7% in May (vs 4.9% expected), the lowest level since November 2007, from 5.0% in April as a large number of Americans gave up searching for work.
On top of the dismal May jobs report, the ISM non-manufacturing index fell to 52.9 in May, the lowest level since February 2014, from 55.7 in April. Investors therefore expected the U.S. Federal Reserve to have a hard time finding reasons to raise interest rates in the summer. As a result, the U.S. dollar slumped, the U.S. government bond yields dropped sharply, while precious metals saw heavy bidding.
Gold soared 2.8% to $1,244 an ounce, the biggest one-day gain since February 11. And silver was up 2.6% to $16.40 an ounce. At the same time, the US 10-year yield sank to 1.707% from 1.811% on Thursday. Meanwhile, Nymex crude oil lost 1.1% to settle at $48.62 a barrel.
Along with the slump in the US dollar on Friday, the ICE U.S. Dollar Index gave up 1.6%, the largest one-day drop since December 3, 2015, to settle at a 3-week low of 94.03.
EUR/USD rose 1.9% to 1.1365, the biggest one-day surge since December 3. The pair also shot back above its 20-day moving average that had been lost since May 13.
USD/JPY dived 2.2% to 106.51, the largest one-day loss since April 28. The pair given back most of its gains from the rebound from 105.52 (seen on May 3) to 111.43 (May 30).
At the same time, USD/CHF plunged 1.2% to 0.9755 losing its 200-day moving average, USD/CAD slid 1.2% to 1.2932, AUD/USD surged 1.9% to 0.7364, and NZD/USD soared 2.1% to 0.6954.
While GBP/USD managed to gain 0.7% to 1.4519 (one-day high at 1.4581) on Friday, the pair reversed course swiftly this morning, reaching down to 1.4350, as weekend polls on Britain's June 23 European Union membership referendum continued showing that people favored "Brexit". Currently, the pair is off Friday's close at 106.51 while trading around the 20-period (30-minute chart) moving average, which stands far below the 50-period one. Meanwhile the intraday relative strength index rose back to levels above 30, showing a temporary relief from heavy downside momentum seen on Friday. However, the pair is still below the key resistance at 107.95 (the 61.8% Fibonacci retracement from the low) and the intraday outlook remains bearish. In case the pair fails to gain upward momentum, it could decline further towards the immediate support at 105.70 (last seen on May 3).
Recommendations:
The pair is trading below its pivot point. It is likely to trade in a lower range as long as it remains below the pivot point. Short positions are recommended with the first target at 106.40. A break of this target will move the pair further downwards to 105.70. The pivot point stands at 107.95. In case the price moves in the opposite direction and bounces back from the support level, it will move above its pivot point. It is likely to move further to the upside. According to that scenario, long positions are recommended with the first target at 108.50 and the second one at 109.10.
Resistance levels: 108.50, 109.10, 109.70
Support levels: 106.40, 105.70, 105
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