Both US equities and the US dollar are trading with a bid tone at the start of the new trading month. The greenback ended June at its highest level for the month.
Today marks the first trading day of the month, and financial markets closed June in a divergent fashion. The divergence was seen chiefly during the main fixing time of the trading day, when the London and New York sessions overlap.
Both US equities and the US dollar gained – an unusual move for traders used to rising equities accompanied by a weaker dollar. Nevertheless, sound economic concepts tell us that the strength of a currency reflects the strength of its economy. Could it be that the strong economic recovery in the United States leads to a stronger currency and higher stock prices? If that is the case, we will find out during the summer months, as investors prepare for the Jackson Hole Symposium in August. Until then, the NFP report due tomorrow looms large.
The dollar gained in the last day of June, closing at its highest level for the month against most of its peers. The Fed’s hawkish message still influences currency traders, despite efforts from FOMC members to discount the upcoming tapering.
Today marks the start of the OPEC-JMMC meetings. The price of oil may become volatile should unexpected news be announced.
Currency traders will also focus on the ISM manufacturing report. It is forecast to show that economic activity expanded in the sector in June, but more important is what happened with the employment component. Traders will surely check to see if the labour market in the sector contracted or expanded in order to position for the all-important NFP report due out tomorrow.
Markets to Watch
Silver, USD/JPY, AUD/USD– markets in focus today.
Silver forms a triangular pattern on the daily timeframe that is already several months in the making. Judging by the shape of it, it appears to be bullish, with the bias that the price will break above $28. Bulls may want to wait for a daily close above $28 before acting on this scenario.
The USD/JPY pair holds inside a rising channel and, as long as this is the case, it is riskier to sell than go long at dynamic support. However, dynamic resistance has functioned as well so far, with the 111.50 an interesting level ahead of the NFP release.
A triangle as a reversal pattern formed on the AUD/USD daily timeframe and in the days following the Fed’s June decision, it had retested the lower trendline. Whenever that happens, the price action suggests a complex correction ended and the lowest edge of the triangle acts as a dynamic resistance.
Winners and Losers
European equities outperformed, while the common currency declined against the US dollar.