After two highly positive employment reports (+938K and +943K) the August number (+235K) missed the consensus estimate massively. However, the +200K to +300K range used to be the norm in the years before the pandemic. Friday’s NFP number could delay the Fed but isn’t likely to reverse their decision to taper. The ISM services index (61.7, 61.5 expected) for August was also very healthy suggesting the Fed hawks still have plenty of ammunition to back up their views. Based on EURUSD creating a bearish shooting star candle on Friday traders agree with this view. Note that the US and Canada have a bank holiday today (Labour Day). By reading further you agree with our disclaimer at the end of this report and acknowledge that we do not provide investment advice.
After the initial reaction (to the NFP numbers) in which the USD was sold and NZD, GBP and AUD performed the best trading has settled and the USD has started to gain strength again. As this is a Labour Day Monday today’s price action isn’t probably going to be that significant with many big players taking the day off. What’s significant though is that the USD index is trading near to a key support level (and EURUSD and GBPUSD near to key resistances) which could lead to price reversals.
Following the NFP Silver (2.23%) and platinum (2.07%) have remained strong while gold (0.35%) also moved higher but was a relative underperformer. USOIL has been weak after the 69.40 support failed to attract buyers. Now the weakness has continued after Saudi Arabia, the biggest oil exporter in the world, cut crude prices for Asia. This suggests Saudis see issues with demand-supply balance after OPEC decided to move ahead with output increases and the delta variant has been causing disruptions to mobility. USOIL is now trading 2.57 % lower than at the time of the NFP release on Friday.
The S&P 500 (-0.03%), the DJIA (-0.21%) and the Nasdaq (0.21%) finished the day with mixed results. All the indices traded sideways on Friday and the same can be said about the last week as a whole. We have a slight upward tendency in the major indices that have been moving steadily higher with low volatility but most sectors closed lower on Friday. Only the technology (0.40%) and the healthcare (0.11%) sectors made small gains. The utility sector (-0.83%) lost the most. Top performers on our watchlist were WPM, NVDA, LRCX, PYPL and AVGO while DD, NTES, LVS, AAL and SLB were the biggest losers.
The above chart shows the % performance of each stock. 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. You should, therefore, 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.
US August non-farm payrolls +235K vs +750K expected which was a massive disappointment but not that bad compared to the levels before the pandemic. The ISM services index (61.7, 61.5 expected) for August was also very healthy suggesting the Fed hawks still have plenty of ammunition to back up their views. No significant macroeconomic data releases are scheduled for today. US stock markets are closed today for Labour Day. For details on other important macroeconomic releases, see the TIOmarkets economic calendar here.
We said on Friday that as we don’t know a) what the NFP number will be and b) how the market will react to it, it’s advisable to wait for the number to come out before taking trades. This golden rule was again highly important. Those that read our report knew that EURUSD was trading right below a highly significant resistance area: 1.1892 – 1.1908 (38.2% retracement level and a weekly resistance level). Therefore, long trades had a low probability of success. However, those that shorted against this weekly resistance had the probabilities on their side.
EURUSD has created a bearish shooting star candle and a decisive break below Friday’s low (1.1865) would confirm the indication. The key price levels and areas 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).
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||After two highly positive employment reports (+938K and +943K) the August number (+235K) was a big disappointment but in fact at a level that used to be the norm in the years before the pandemic. This number could delay the Fed taper but isn’t likely to reverse their decision to taper.|
|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
- German factory orders +3.4% (-1.0% expected)
- Saudi Arabia cuts oil prices for Asia
- New Zealand ANZ Commodity Price index -1.6% (-1.4% prior)
- Mercedes: chip shortage to stay in 2022
- 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)
Quick Links to Recent Analysis
The Next Main Risk Events
- AUD – RBA Rate Statement
- AUD – RBA Cash Rate
- GBP – MPC Member Saunder’s Speech
- EUR – ZEW Economic Sentiment
- EUR – German ZEW Economic Sentiment
For more information and details see the TIOmarkets economic calendar here.
Chief Market Analyst
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