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USD and Ethereum finding form

Chris Weston
Head of Research
Jul 1, 2021
It's been a good week for cryptos, and now the attention turns to US non-farm payrolls.

For those who can watch, here is the daily peruse through the charts that matter as we roll from US to Asia trade. Getting you set for the day ahead, with news, views and set-ups in play -

Traders remain stubbornly drawn to tomorrow's US non-farm payrolls and the preference is to manage exposures accordingly - maybe there is an element of month-end flow in play too, as moves in FX are somewhat contradictory.

For example, the USD is higher primarily against the funding currencies, while risk proxies such as AUDJPY, AUDCHF and GBPJPY are also stronger. The weakness seen in EU equities could suggest an unwind of EU assets, as traders question re-opening trades, and therefore it's easy to see the weakness in EURUSD which is testing the 18 June swing low – the bulls will defend this, but should it break and the DXY will make a new high and this could be a magnet to attract USD flow. USDCHF, often seen as EURUSD in reverse, has made a new high into 0.9250 and seems to be holding the close – one for the breakout heads out there, as is the case in USDJPY – the JPY seems universally weak.

A payrolls north of 800k could get US bond yields higher and put a further bid in the USD, as it is the 10yr Treasury has not budged and remains stuck at 1.47%.

There is so much conjecture as to the ‘correct’ level for the benchmark 10yr - of course, we all know the correct price is the market price, but given the levels of above-trend growth in the US in the years ahead and further fiscal stimulus ahead of the mid-terms, I’d argue the 10yr should be closer to 1.70%, perhaps higher…no one wants to put the trade on, especially with the Delta variant having many questioning the re-opening trade.

Make me choose, and I see Treasury yields heading higher, with real yields driving – perhaps US payrolls promote this trade – it would take an above 800k headline jobs figure, hourly wages above 0.5% and the U6 unemployment rate to head lower – but the data has the potential to push real yields higher, and I see the balance of risk skewed to an above-consensus print. The USD would find form there, as I say.

Of course, we need to consider a number shy of expectations or even well below – some have drawn conclusions after today's ADP private payrolls came in at 692k vs 600k consensus, although the ADP has been an awful guide of late, so I’d give it a wide birth.

Gold has found a better tone, pushing 50bp higher, and holding 1761 with vigour – a break here and I’d be eyeing a fairly quick move into 1721. The 5-day EMA, which is trending lower, holds up play and until price can convincingly close above here I would be biased for lower levels. In crypto, Ethereum is the strong coin for the bulls, with price up for 5 straight days and breaking horizontal resistance at 2220 – it is trending and has gained nearly 25% this week – longs are prefered here.

Today we see the Japanese Tankan report, Aussie trade balance, China Caixin manufacturing, and manufacturing prints from Europe, UK and the US. The US jobless claims are worth a focus, but I suspect they won't be a volatility event, so its nice for macro heads, but not something that is going to cause price to move. We have the OPEC meeting in play and headlines have been emerging… the US ISM manufacturing should get the lions share of attention.

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