Weekly US jobless claims improved again. The number came in at +340K (a new post-covid low) while the consensus estimate put the number at +342K and there was a considerable improvement from the previous number of +354K. Weekly claims, contrary to the big ADP disappointment on Wednesday, point to improving the jobs market. However, judging from the traders’ reactions (USD sold off yesterday) they are more likely to believe the negative indications given by the ADP even though its track record in predicting the official NFP release has been quite spotty. By reading further you agree with our disclaimer at the end of this report and acknowledge that we do not provide investment advice.
The weak ADP number begs the question of whether the consensus estimate (+750K) for today’s official Non-Farm Payrolls report can be achieved. It’s worth noting that even if the number was confirmed to be in line with the expectations it would mean there’s a considerable loss of momentum in jobs growth. The previous number of 943K would be then missed by 20% even if the analyst expectations were met. No wonder the traders have been selling the USD (-0.29%) which is the weakest currency at the moment while commodity currencies NZD (+0.61%) and AUD (+0.52%) have taken the lead. The percentage changes are relative to the values at the time of London open yesterday. The yield for the benchmark US 10-year Treasury bonds moving lower yesterday (to 1.29% from 1.31%) also weighed on the dollar.
Gold (+0.05%) continued to trade in a tight range (look for a breakout!) and the other precious metals did pretty much the same. Platinum (+0.25%) and silver (-0.60%) reacted to the US weekly claims data but settled to trade in relatively narrow ranges after the reaction. Crude oil (+1.84%) continues to provide opportunities to intraday and swing traders and is now trading between key price levels. Read more later in this report.
US equities inched a little higher yesterday. The S&P 500 (+0.28%), the DJIA (+0.37%) and the Nasdaq (+0.14%) managed all to record small gains. The oil price rally helped the energy sector (+2.54%) to beat the rest while the communications sector (-0.67%) was the underperformer of the day. Nine out of 11 S&P 500 sectors gained yesterday. The strongest stocks in our CFD selection were BAX, HAL, DVN, BKR and COP while ROKU, BB, B, MA and ORLY were the weakest. See the above chart for the % performance of each stock.
The stocks are presented here with the S&P 500 tracking ETF (SPY, red line) to illustrate the performance of each stock relative to the benchmark index. This allows our readers to see the potential for intraday trading opportunities in these stocks. Often the sudden increase in volatility continues on the second day which means that you should keep monitoring these stocks to see if they will satisfy your criteria for a trade. All % performance charts in this report are courtesy of Tradingview.com.
Today’s main risk event is obviously the release of the official Non-Farm Payrolls data. For details on other important macroeconomic releases, see the TIOmarkets economic calendar here.
EURUSD broke out of the bearish trend channel when the ADP employment report missed the consensus expectations by a wide margin. Traders took it as a hint that the official NFP number might also be a disappointment and that the Fed might delay tapering their asset purchase program. When new information enters the market, the market quickly adjusts to it and the technical picture changes. Now EURUSD is trading outside the bear channel and the bulls are preparing to test a weekly resistance level at 1.1908. The NFP number can move the market considerably and as we don’t know a) what the number will be and b) how the market will react to it, it’s advisable to wait for the number to come out before considering trading the price action. Remember that it’s always the market’s reaction to the news that’s important. Not so much the news itself. The key price levels in EURUSD are 1.1663, 1.1804 (50-day SMA and a previous resistance level), 1.1892 – 1.1908 (38.2% retracement level and a weekly resistance level) and 1.1965 – 1.1975 (the 50% retracement level and a daily swing point).
The price of gold also broke out of a bear channel but has traded in a sideways range since the breakout. Apparently, there is no big appetite for strong moves before the Fed signals clearly what its taper timetable is. One thing is certain though. Periods of low volatility are always followed by a sudden increase in volatility. This has been characteristic for gold lately. Sideways moves are followed by quick bursts of volatility and then the price settles to the next range. Therefore, it’s likely that there will be another volatility increase soon and today’s NFP number could be just the trigger needed to take the price out of this range. The range high and low are 1801.60 and 1820.05. The key price levels outside the range are 1680.43, 1774.47 and 1833.92.
Our view on USOIL (here) was that the downside was limited and that the market could rally. This turned out to be the case and USOIL has now rallied to the upper end of the bear channel and into the confluence zone (70.50 – 71.42) we identified in the report. USOIL is now fairly close to the channel high (70.42) and reacted lower yesterday from it. The market also trades right below the SMA(50). USOIL is, however, also right above a key support level (69.41) so it will be very interesting to see what factors the market will pay more attention to. One bullish indication is the price action after the OPEC+ signalled it is going forward with the planned increases in production. Instead of selling off, the price rallied strongly which indicated that the production cuts were priced in already and that oil traders are focusing on other factors such as increased mobility, the weaker dollar and global growth expectations. Also, the fact that some 80% of the production capacity in the Gulf of Mexico is shut down due to Hurricane Ida and that it might take weeks to get the capacity up and running again, has been supporting the price. The key price levels in USOIL are 61.72, 67.00, 69.41, 73.88, 74.91 and 76.38.
Macro Drivers for the USD
As the most followed, invested and traded markets for risky assets are priced in the USD it is helpful to understand what macroeconomic factors impact the other side of the equation, the USD. Whether we are trading EURUSD, XAUUSD or US equity CFDs the factors impacting the dollar, the nominator in the equation, have a significant role in the formation of all medium to long-term price action. The following table summarises the most important fundamentals.
|The FED||Fed Chair Powell said on Friday (August 27th) in Jackson Hole Symposium that tapering could begin in 2021 but also voiced concerns about the spread of delta variant.|
|Stimulus||The US lawmakers have authorised approximately five trillion dollars of economic stimulus since the beginning of the pandemic. Now, US lawmakers have agreed to a $1.2 trillion infrastructure spending plan. The Fed officials consider ending the asset purchases in the middle of 2022.|
|Yields||Apart from the recent pickup (that started in August 2021), the Treasury yields have been moving lower since March 2021. All in all, the yields and interest rates are extremely low on both nominal and real basis.|
|Employment||The last two employment reports have been very positive (+938K and +943K) indicating that the hawks in the Fed will have fundamental backing for their views on early tapering and rate hikes.|
|Inflation||The month on month Core CPI (excluding food and energy) for July came in at 0.3% (0.4% expected) which indicated a big drop in the rate of inflation from the month before (0.9%). The Fed has earlier taken a view that inflation is transitory and will be therefore likely to fade away. Even though one data point doesn’t make a trend it seems that the Fed has been correct in their inflation projections. The lumber futures for instance are once again trading at October 2020 levels and down over 70% from their May highs.|
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Market News & Facts
- China Services PMI 46.7 (52.6 expected)
- Gazprom to switch all settlements from USD to CNY
- US Factory Orders 0.4% (0.3% expected)
- WHO: Variant Mu could be resistant to coronavirus vaccines
- Australia July trade balance 12.1 bn AUD surplus (10.2bn expected)
- OPEC in agreement on increasing output gradually
- US ISM Manufacturing Index 59.9 (58.6 expected)
- USD under pressure after ADP disappointment (374K, 640K expected)
- BBC: New coronavirus variant could be more resistant to vaccines
- US CB Consumer Confidence 113.8 (122.9 expected)
- US Revised UoM Consumer Sentiment 70.3, (70.9 expected)
- US Core PCE Price Index m/m 0.3% (0.3% expected, 0.5% prior)
- Over 95% of the Gulf crude oil production offline due to Hurricane Ida
- COVID-19 boosters for to all vaccinated people in Israel
- Australian retail sales -2.7% (-2.6% expected)
- US durable goods orders for July -0.1% (-0.3% expected)
- EU might again impose travel restrictions on Americans
Quick Links to Recent Analysis
The Next Main Risk Events
- USD – Average Hourly Earnings m/m
- USD – Non-Farm Employment Change
- USD – Unemployment Rate
- USD – ISM Services PMI
For more information and details see the TIOmarkets economic calendar here.
Chief Market Analyst
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