「KOL Analysis•Arslan Ali Butt」June 05 – Big Day, the U.S. Non-farm Payroll In Highlights!

The financial markets continue to trade with the Risk-off sentiment in the wake of ongoing geopolitical tensions between the U.S. and China. The U.S. government said that it would block Chinese airlines from flying into the United States. The decision arrived in response to the Chinese policy that has prevented U.S. carriers from service between both countries.

While the Chinese government restricted to permit U.S. air carriers to operate the routes they previously flew. So, in response to this, the U.S. Transportation Department said that it would allow Chinese airlines to operate the same number of passengers as the Chinese governments allow theirs. This tit for tat retaliation keeps the safe-haven appeal high while driving bearish bias for the stock market indices.

Gold - XAU/USD - U.S. NFP in Focus

The precious metal gold prices closed at $1713.97 after placing a high of $1721.78 and a low of $1696.97. Overall the movement of gold remained bullish throughout the day. The safe-haven metal gained traction on Thursday after the release of worse than expected U.S. job reports. The jobless claims remained near the mark of 2M despite easing of lockdown restrictions from all 50 states of the USA. The revival of safe-haven demand in the economy due to increased jobless claims from the U.S. showed that the coronavirus's economic fallout would not fade away easily.

The U.S. Unemployment Claims for the previous week reported as 1.88M versus the forecasted 1.82M, which ultimately weighed on the greenback. The Revised Nonfarm Productivity for the quarter showed a decline of 0.9% against the expected decline of 2.5% and weighed on the U.S. dollar. Whereas, the Revised Unit Labor Costs for the quarter came in as 5.1% against the expected 4.8% and supported the U.S. dollar.

Furthermore, the Trade Balance for April showed a deficit of 49.4B against the anticipated shortfall of 41.5B and weighed on the U.S. dollar. The U.S. Labor Department showed an additional 1.9M Americans applied for jobless claims during the previous week, making a total of 43M unemployed people since the pandemic started in March.

For all the new members, gold and the U.S. dollar share a negative correlation. Thus, the drop in the U.S. dollar drives a bullish trend in the precious metal gold. Since the United States' macroeconomic data came against the U.S. dollar and made it weaker, investors started moving their investments into gold, causing a surge in its prices.

On Friday, the Non-farm payrolls will provide more clarity over the damage that occurred in the labor market last month, and traders will keenly await its release. Overall, the economists are expecting another jump in the U.S. unemployment rate from 14.7% to 19.4% while the

Average Hourly Earnings are expected to plunge from 4.7% to 1%. The NFP itself is expected to report -7750K vs. -20537K figures beforehand. Fundamentally, the yellow metal is likely to stay supported on Friday. Let's look at the technical outlook of gold.

Daily Technical Levels

Support Resistance

1702.61 1731.56

1686.53 1744.43

1673.66 1760.51

Pivot Point; 1715.48

Gold - XAU/USD - Daily Forecast

Gold is trading with a slightly bearish bias around 1,711 area after testing strong resistance at 1,721 level. On the 4 hour timeframe, the 50 periods Exponential Moving Average (EMA) is providing strong resistance at 1,721, and investors need a solid reason to break above this level today. Well, the U.S. NFP can be that reason, but let's keep an eye on it.

Besides, the closing of bearish engulfing candles below 1,721 suggests the chances of selling bias in gold. On the lower side, gold has the potential to drop until the next support area of 1,694 level, which is extended by the double bottom field on the chart. Consider staying bearish below 1,721 and bullish above the same level today.

EUR/USD – ECB Policy Drives Bullish Price Action

The EUR/USD closed at 1.13353 after placing a high of 1.13621 and a low of 1.11945. Overall the movement of EUR/USD remained strongly bullish throughout the day. The EUR/USD rose for 9th consecutive day to 12-weeks high on Thursday and extended its previous bullish rally after the European Central Bank increased its bond-buying programs. The bold stimulus measure from the European Central Bank raised the hopes for the Eurozone could recover from coronavirus crisis quicker than expected.

On Thursday, the ECB said that it would increase its pandemic bond purchases program by 600 Billion euros, which will give support to the economy against the coronavirus pandemic. The expansion in monetary stimulus was stronger and sooner than the market anticipation, which raised the bars for single currency Euro, ultimately pushing EUR/USD prices to records high.

By the way, this amount of 600 billion euros comes on top of the 750 billion euros of government bond purchases, which were announced in March by ECB, making a total of 1.35 trillion euros. The timeline of the program will be prolonged from the end of 2020 until June 2021; this could also be changed if the bank thinks that the crisis was over.

The borrowing cost decreased because of the emergency program announced in March, and Thursday's announcement will also contribute further reduction in borrowing cost, and investors took full advantage of it. The downside risks decreased, and the hopes for a better recovery of the Eurozone increased and pushed EUR/USD pair higher.

However, the gains somehow compromised due to weak macroeconomic data on Thursday.

At 13:59 GMT, the Retail Sales in April were declined by 11.7% against the expected decline by 15% and supported Euro. At 16:45GMT, the Main Refinancing Rate from Eurozone remains unchanged at 0.0%. From America, the unemployment claims last week increased to 1.88M against the forecasted 1.82M, which weighed on the U.S. dollar. The weak U.S. dollar added in the gains of EUR/USD pair on Thursday.

Daily Technical Levels

Support Resistance

1.1233 1.1402

1.1130 1.1466

1.1065 1.1570

Pivot point: 1.1298

EUR/USD - Daily Forecast

Technically, the direct currency pair EUR/USD is trading sharply bullish at 1.1345 level, especially after violating the double top resistance mark of 1.1247 on 12 hours timeframe. The bullish breakout occurred on the release of ECB policy decision, and now this double top resistance level of 1.1247 is likely to work as a support for EUR/USD pair. On the 12 hour timeframe, the EUR/USD pair has formed a bullish engulfing candle, which suggests strong bullish bias among traders. The bullish bias can drive another round of buying until the 1.1450 resistance level.

The EUR/USD pair has also entered in the overbought zone, as we can see, the lagging indicator 50 EMA is left far behind at 1.1012 level. Usually, this means, the EUR/USD prices should be trading around 1.1012, and there's sufficient room for bearish correction in the pair. While the leading indicator, MACD, is forming strong histograms over 0 level, supporting a bullish trend. Let's consider staying bullish above 1.1298 and bearish below this level until the release of U.S. NFP figures.

Stay tuned for more updates, and all the best!

[About The Author]

Arslan Ali has been working in Forex market since 2013.

He is

Forex Analysts & Trainer

Forex Webinars & Seminars

Forex Analysis & Forecast Reports

Forex Trading Signals

Forex Trading & Risk Management

MBA Finance

MPhil- Behavioural Finance

Research In Investors Psychology

Cognitive Heuristics & Emotional Biases in Traders Decision Making

Expertise: Trading Psychology; Speculative Positioning & Market Sentiment; Technical & Fundamental Analysis.

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