A one-two hit to joined at the hip SP500 and AUDUSD

After a benign overnight session, a wakeup call for markets earlier today as soft Australian jobs data hit risk sentiment already fragile due to an increase in COVID19 cases in some U.S. states and Beijing and following the release of excerpts of John Bolton’s critical book on President Donald Trump.

Charts (1)

As noted by the RBA in their June meeting minutes released earlier this week, the AUDUSD and the S&P500 are moving in tandem under the existing correlation regime.

”Movements of the Australian dollar over the course of this year had been closely correlated with global equity prices”.

The loss of 228,000 jobs in Australia was worse than forecast but not outside the range of economists’ expectations posted in the lead-up. A key concern is that 142,000 people left the workforce during May resulting in a fall in the participation rate that limited the rise in the unemployment rate to 7.1%.

If the participation rate had held steady at 63.6%, the unemployment rate would have risen above 8%.  Furthermore, without the government's Jobseeker program that doesn’t require people to look for a job, the unemployment rate would have been well over 10%.

There is some good news in all this. Firstly the Jobkeeper program is working as designed. The second is that following the economies partial re-open in Mid-May, employment will increase in the months ahead. Thirdly, the softer data has taken some further heat out of the AUDUSD and appears to cement the idea of some consolidation between .7050 and .6680 as discussed in yesterday's note.

Turning now to the S&P500. The spike in volatility following last week’s FOMC meeting provided another reminder as to why I tread warily after FOMC meetings.  Despite breaking the uptrend support at 3070/60 I had thought might hold, the view remains that the sell off from the 3231.25 high is corrective/counter-trend rather than a reversal lower.

Narrowing the focus, should the S&P500 trade below Mondays 2923.75 low during the current episode of weakness, it is likely to find support between 2850/30 which encapsulates the 38.2% Fibonacci retracement and wave equality target.

It is in this region I will be looking for a base to form in the shape of a bullish daily reversal candle in expectation of the uptrend resuming and a retest of the recent 3231.25 high. 

A one-two hit to joined at the hip SP500 and AUDUSD

Source Tradingview. The figures stated areas of the 18th of June 2020. Past performance is not a reliable indicator of future performance.  This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

From time to time, GAIN Capital Australia Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.