USD claws back losses

(Jing Ren – Orbex)

EUR/USD tests support

The US dollar surged after July’s nonfarm payrolls more than doubled the market’s expectations. Multiple tests of the demand zone around 1.0100 suggests solid interest in keeping the rebound intact. 1.0290 next to the 30-day moving average is a key hurdle ahead. A bullish breakout would put the single currency back on track as short-term sellers capitulate. Then 1.0450 at the start of the July sell-off would be the next target. However, a fall below the said support could send the pair back to parity, putting the recovery at risk.

USD/CAD bounces back

The Canadian dollar softened after weaker-than-expected jobs data. The US dollar has been resilient despite its break below the daily support at 1.2480. This suggests that the pair is still in a consolidation phase. 1.2770 saw strong buying interest and a close above 1.2900 on the 30-day moving average prompted sellers to cover their bets, easing the downward pressure. A break above 1.3000 may help the bulls regain control, paving the way for a rally towards 1.3200. The former resistance at 1.2880 has become a fresh support.

DAX 40 tests rising trendline

Stock markets fall as a robust US labour market may stir up the Fed’s hawkishness. The rising trendline is a sign of improved sentiment and a close above 13650 at the tip of a faded rebound in mid-June indicates a strong bullish bias. However, the RSI’s repeated overbought situation signals an overextension and could cause a pullback. 13550 on the trendline is the first support and 13330 could test buyers’ commitment. A bounce above 13780 may attract more momentum buying, sending the Dax towards 14050.

Strong US jobs data revive Fed hawks

(Ipek Ozkardeskaya – Swissquote Bank Ltd)

The US economy added 528’000 new nonfarm jobs in July, significantly higher than 250’000 expected by analysts. Last month’s data was revised up to 400’000. The unemployment rate fell to 3.5%, the lowest level since late 1960s. Wages grew 5.2% vs 4.9% expected by analysts.

Strong US jobs data revived the Federal Reserve (Fed) hawks on Friday. The US 10-year yield jumped, and the US dollar gained. Gold gave back a part of gains, and was offered into to the $1800 mark, as the higher yields increased the opportunity cost of holding the non-interest-bearing gold.

US stocks closed in the negative, although the three major US indices closed the first week of August in the positive. The S&P500 gained 0.4%, while Nasdaq jumped more than 2% last week, in the continuation of the July rally.

It’s all about the market rhetoric

Stock don’t need good data, they need softer yields, as softer yields push their valuations higher.

Since the beginning of July, the S&P500 recovered more than 10%, while Nasdaq bounced around 17% higher. This was partly due to the better-than-feared earnings reports, but mostly due to the easing US yields on the back of growing recession expectations.

As such, the market rhetoric went from ‘the Fed is hiking interest rates to fight inflation and that’s bad for the stocks’, to ‘higher rates will push the US economy into recession and get the Fed to slowdown, and maybe to reverse its rate hiking policy’. This shift in expectations had a cooling effect on the US yields, and the softer yields pushed stock prices higher, as lower rates automatically push the stock valuations higher.

Inflation is key

The S&P 500 is nearing an important technical level near 4180 level, the peak reached in June, before the index plunged again below the 3700 mark; we could see sellers come in play into the 4200 mark, and bring the index lower.

But the sentiment will mostly depend on this week’s inflation data. If US inflation starts easing, the Fed could rethink about smaller rate hikes, which could give another positive swing to the stocks.

Therefore, inflation data is, again, key. Analysts expect that the US inflation may have slowed to 8.7% in July from 9.1% printed a month earlier. It’s possible given that the oil prices eased around 15% last month.

For now, the Fed is given around 70% chance to hike the rates by another 75bp in September. We will see how that evolves throughout the week.

Is crude oil below $90 pb sustainable?

The barrel of US crude kicks off the week slightly upbeat, below the $90 level. But the news that China started mass testing in the Hainan beach resort comes as a warning that China is still not done with its fight against Covid.

Last week, OPEC increased the production outlook by a laughable, and a completely meaningless 100’000 barrels per day. That’s about 0.1% of the global oil output.

But the recession fears and the slowing demand will likely continue driving the market; we could see a further downside pressure on oil prices.

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