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NZD and AUD higher on good data and Hawkish sentiment

The US dollar is caught in a range while traders wait for the ADP and NFP numbers. This is allowing other pairs to move on localized data which includes New Zealand employment and more Hawkish notes from the central banks. The equities are also rising on great earnings data and this last week has been a slow melt-up for the indices.

Market Brief

The forex markets start this morning in a similar fashion to how they closed yesterday’s London session, with the Antipodean currencies riding higher against a backdrop of weaker US dollar and yen. Today should be a fairly risk-on sort of affair with ADP jobs data being the main focus for traders in the US session. Until then the AUDUSD and NZDUSD are benefitting from a US dollar that is caught in a 4-day range and good data out of China.

The Caixin China General Services PMI showed that the services sector in China has rebounded. With sharper rises in business activity and new orders. Employment is also expanding though there are disruptions and bottlenecks hampering the orders and those supply chain disruptions are making operating expenses increase at a faster pace. Business confidence also strengthened from that seen in June. Supporting the sharper recovery inactivity was a further upswing in new business.

The AUDUSD is now trading above the daily 20 ema but is approaching the resistance formed from a previous market structure low. A weaker US dollar would get the Aussie above this and that would lead to an increase towards the daily 50 ema at least.

The Kiwi is riding higher above all 3 major daily ema’s that I track on the back of better than expected jobs data and general risk-on sentiment.

The unemployment rate continued to fall from its recent peak of 5.3% in the September 2020 quarter, dropping 0.6% points in the June 2021 quarter, to reach 4.0%.

This sharper decline in unemployment and increased wage costs will be putting more pressure on the RBNZ to increase interest rates to try and cool the markets before they overheat. The employment data is the last major scheduled piece of economic news that the Reserve Bank is likely to receive before it decides whether to raise the official cash rate from 0.25% at its next meeting in August.

In this early trading session, we receive the results of the German Markit PMI’s, along with EU and UK Final PMI data.

The GBPUSD has broken out of the downtrend and has now tested the breakout, so I am expecting a continuation higher if all else stays equal with the US dollar this week. The UK is doing well and the FTSE100 is reflecting the overall bullishness institutions have towards the pound and the UK.

For some reason, the retail traders on ActivTrader are deciding to increase their short exposure to the GBPUSD so once again I am looking for these market participants to get squeezed. The major swing high for 2021 looks like the most likely place that they have placed their stops as there are not many really defined swing highs between 1.4000 and 1.4250. A stronger US dollar would mean the areas of balance that formed on the way down would act as resistance, so it’s not likely to be a moon shot higher.

This last week in the markets has been very bullish for equities during the earnings season, with only the Japanese Nikkei and Australian ASX unable to trade above their day opening price today. That said the last weeks trading has made all the major bourses turn green. The melt-up has been most pronounced in Asia-Pac after their rout following Chinese authoritarian moves against Tech and Educational companies.

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