Daily Report: Risk Sentiments Stabilized, Canadian Employment Watched

Markets stabilized from yesterday’s sharp risk selloff. While Asian equities were generally lower following US stocks, European indices opened the day flat. Yen crosses also recovered after yesterday’s spike low. Dollar is under mild pressure against European majors but overall it’s stuck in familiar range. The financial markets could turn into consolidative mode before the week closes. Nonetheless, employment data from Canada will be closely watched and strong numbers today could trigger another round of rally in the Loonie.

Peripheral European bonds weakened yesterday after Espirito Santo Financial Group, which holds a 25% stake in Banco Espirito Santo (BES) and is the bank’s largest shareholder, requested to suspend its shares due to “material difficulties” at its own largest shareholder. The BES noted that it is “waiting for the release of the restructuring plan of EspĂ­rito Santo Group in order to assess the potential losses related to its exposure”. BES’s shares plummeted -17% yesterday before trading was stopped. Being the largest listed bank of Portugal, the selloff dragged Portuguese PSI all-share index -3% lower.

ECB governing council member Nowotny said there is no need for “further action in the near future” regarding monetary policy, as there is no imminent risk of deflation. He noted that the ECB already saw “some positive results” fro its stimulus programs, including “a certain easing of financing conditions on the European level and also to the tendency of being able to have stopped the appreciation of the euro.”

On the data front, Australia home loan was flat in May. German CPI was finalized at 0.3% mom, 1.0% yoy in June. Canada employment is expected to show 24k growth in June and unemployment is expected to be unchanged at 7.0%.

Daily Pivots: (S1) 1.0636; (P) 1.0656; (R1) 1.0667; More

We’re still treating the decline from 1.1278 as a correction. In case of another fall, we’d expect strong support from 1.0608 cluster support level, which is also close to the medium term trend line, to contain downside and bring reversal. Above 1.0693 resistance will turn bias to the upside for 1.0813 resistance. Decisive break there would confirm reversal. However, sustained break of 1.0608 will have larger bearish implication.

In the bigger picture, there is no clear sign that the whole up trend from 0.9633 and 0.9406 is reversing. We’ll stay medium term bullish as long as 1.0608 support holds (61.8% retracement of 1.0181 to 1.1278 at 1.0600). Rise from 0.9406 is viewed as the third leg of the pattern from 0.9056 (2007 low) and is still expected to extend to 61.8% retracement of 1.3063 to 0.9406 at 1.1666 in medium term after completing the correction from 1.1278. However, sustained break of 1.0608 will argue that the medium term trend has reversed and will turn outlook bearish.

USD/CAD 4 Hours Chart

USD/CAD Daily Chart

GMT
Ccy
Events
Actual
Consensus
Previous
Revised
1:30
AUD
Home Loans May
0.00%
-0.50%
0.00%
-0.20%
6:00
EUR
German CPI M/M Jun F
0.30%
0.30%
0.30%

6:00
EUR
German CPI Y/Y Jun F
1.00%
1.00%
1.00%

12:30
CAD
Net Change in Employment Jun

24.0K
25.8K

12:30
CAD
Unemployment Rate Jun

7.00%
7.00%

18:00
USD
Monthly Budget Statement Jun

$79.0B

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