What we are looking for
- USD mixed: USD has been choppy in recent days. There is a shade of USD strength ahead of payrolls but the reaction to the jobs report could be a gauge for the next move.
- Indices have been positive but are consolidating today: Trends have been positive, but there is a consolidation in front of payrolls
- Commodities mixed: Gold and silver are consolidating recent gains, whilst oil is looking to build support after yesterday’s downside break.
- Data trading: Nonfarm Payrolls will drive elevated volatility across asset classes today, with USD being a key mover in forex. Higher than expected jobs growth would be USD positive, but could be uncertain for risk appetite. An upside surprise allows the Fed to be more aggressive in monetary policy, which is negative for equities. Canadian Unemployment will impact CAD positions.
Overview
Markets traditionally tend to be rather cautious in front of the US jobs report and this morning is along that line. The moves on the USD have been mixed throughout this week. Fed speakers have been lining up to deliver hawkish comments in recent days. The potential is for yields to begin to move higher and the dollar builds support once more. However, reaction to any surprises to the US Nonfarm Payrolls may be an important gauge for the next move on the USD.
Indices are pausing a strong run recently. For Wall Street, this is coming with the S&P 500 futures just under a key area of resistance at 4200. A breakout will be an important step for the next phase of recovery. Commodities are also mixed, with gold seeing a pause after its latest breakout. Oil is also in focus after yesterday’s decisive break below $100 on Brent Crude. Some important moves are being seen across major markets.
The US Employment Situations is the big focus on the economic calendar. Nonfarm Payrolls are expected to reduce to 250000 in July. With a contraction in the Employment components of the July ISM data, there could be a downside risk to Nonfarm Payrolls. The unemployment and wage growth components of the jobs report will also be watched. The Canadian Unemployment is announced at the same time and is often lost in the noise of the US jobs report. However, a forecast increase in the jobless rate would raise eyebrows as it would indicate the beginning of confirmation of a tightening labour market.
Today’s news
Market sentiment is on pause ahead of payrolls: Markets are sitting in a cautious wait-and-see mode.
Treasury yields steady after slipping yesterday: Yields fell yesterday but are holding ground this morning. We expect decisive direction off the payrolls report later.
China continues military exercises: The flexing of Chinese naval muscle continues in the sea off the coast of Taiwan. Tensions are elevated in the region, but for now, this seems to be posturing.
Fed’s Mester is the latest to be hawkish: Mester (very hawkish, 2022 voter) is the latest FOMC member to talk in a hawkish tone. Although she is naturally at the hawkish end of the scale, she is “pencilling in” rates going above 4% and to stay there until inflation comes back closer to 2%.
Cryptocurrencies find support: After the recent mini-trend lower, crypto is finding support again. Bitcoin has rebounded strongly this morning with gains of +3% and solidly back above $23,000
More Fed speakers to watch for: Thomas Barkin (hawk, not a voter until 2024) speaks at 12:00 GMT.
Economic Data:
- US Employment Situation (12:30 GMT) – Headline Nonfarm Payrolls are expected to be +250000 in July (after 372000 in June). Unemployment is expected to remain at 3.6%, whilst Average Hourly Earnings are expected to fall slightly to 4.9% (from 5.1%)
- Canadian Unemployment (12:30 GMT) – The jobless rate is expected to move slightly higher to 5.0% in July (from 4.9% in June)
Major markets outlook
Broad outlook: A cautious feel to markets this morning. The outlook has been more mixed in recent days on forex, whilst indices have held a positive line.
Forex: USD is a shade stronger but moves have been more choppy in recent sessions. There is little direction of note this morning.
- EUR/USD is still fluctuating in a mini trading range between support at 1.0095 and resistance at 1.0293. Nonfarm Payrolls may generate some direction to end this near 200 pip range. Technicals are relatively neutral on a near-term basis, but the RSI remains stuck under 50 and the multi-month downtrend is intact. Losing the important higher low support at 1.0095 would re-open parity again. A close above 1.0295 opens 1.0350.
- GBP/USD has been choppy since the Bank of England decision. However, the recovery uptrend is breaking and hints at a less positive outlook. However, whilst support at 1.2060 remains intact and the RSI holds above 50 the outlook is still supported. Initial resistance is 1.2210 and then 1.2293.
- AUD/USD has held the support at 0.6875/0.6910 but the resistance at 0.7045 is growing. The outlook could be settling into a range phase now between these two levels. Breaking either would subsequently define the outlook over the near to medium term basis.
Commodities: Gold is holding the breakout, but silver is hitting resistance. Oil is looking to recover a downside break.
- Gold has continued to recover well and broke above Tuesday’s high of $1788 with a building two-week uptrend. Consolidation is forming today but the $1805 resistance is the next test. A break above there would open $1845/$1856 as the next resistance area. The importance of support at $1754 is growing. The daily RSI holding above 50 is encouraging for the recovery.
- Silver has recovered well too, but is struggling under the overhead supply resistance at $20.45/$20.60. Candlesticks have been rather indecisive in recent sessions and the next move becomes important. Another bull failure under $20.45/$20.60 opens the prospect that this is a failing recovery that may find a new bout of selling. The market needs to build support, ideally above the $19.48 breakout, to build on recovery momentum. The RSI holding above 50 would help. Initial support is at $19.77.
- Brent Crude oil has fallen sharply in recent sessions to now close below $98/$100 which are the old multi-month range lows. However, it is interesting to see a tick higher this morning and the RSI again picking up from the low 30s. We would look for another bull failure to then sell. Resistance is between $100/$102.50 initially. Tests of the next support at $95/$96 could then be seen.
Indices: Wall Street is consolidating recent gains as key resistance is being tested. This is a similar picture in Europe too.
- S&P 500 futures have just been consolidating the recovery in the past 24 hours. This is coming as the key May resistance at 4201 is within touching distance. Momentum remains strong and suggests buying into weakness for further upside pressure on resistance. The importance of support at 4080 is growing. Above 4201 opens 4305 initially.
- German DAX continues to run higher along a four-week uptrend as a basis of support. The market is testing the resistance band between 13665/13735. With RSI momentum increasingly strong into the 60s, we look to buy into near-term weakness. Initial support is at 13567 with the higher low at 13330 now key support. A continued move higher would open 14250/14300.
- FTSE 100 is holding the breakout above 7370 but is not matching the recovery of peers such as the DAX and Wall Street. Resistance is building between 7474/7490. However, there is still a positive bias following the break above 7370, with the RSI in the high 50s. There is good support in the band 7335/7370. Near-term weakness looks to be a chance to buy.
This material is for general information purposes only and is not intended as (and should not be considered to be) financial, investment or other advice on which reliance should be placed. INFINOX is not authorised to provide investment advice. No opinion given in the material constitutes a recommendation by INFINOX or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.
