EUR/USD outlook improves as US jobs point to peak Fed rates – FOREX Friday
The EUR/USD outlook brightened as the dollar was sold in the aftermath of a mixed-to-weak US non-farm payrolls report.
So, the US jobs data was mixed and the probability of a rate hike in September fell to 13% from about 20% prior to the data release. Correspondingly, the US dollar and bond yields fell, gold rallied, and stocks stabilised somewhat. With the July jobs report out of the way, there are now 3 more major data releases left for the market to weigh until the FOMC meets on September 20. Until then, we will have one more jobs report in September, and two more CPI reports – the first of which is due next week. Any further weakening of CPI could cement expectations of a policy hold.
What will the markets focus on next?
Investors will turn their attention towards consumer inflation data, due next week on Thursday. US CPI inflation has fallen sharply in recent times, printing below-forecast readings in each of the past 4 months. Annual CPI fell to just 3.0% in June from around 6.5% at the start of the year, increasing the likelihood that interest rates have now peaked.
But services inflation remains high as strong wage growth continues to push up input costs. This is something that was highlighted in the NFP report, which showed average hourly earnings rising 0.4% month-on-month or 4.4% year-on-year, which was more than expected. Annual earnings have now increased by 4.4% in April, May, June and July. This shows that wage inflation is still going strong, and it is a concern for the Fed. This is especially the case for the services sector – which was also highlighted by the rise in prices paid index of the ISM services PMI.
So, there is a risk that CPI could overshoot expectations on Thursday. But with the manufacturing sector clearly struggling, and now jobs market softening a little, the Fed will feel that its policy is restrictive enough to help cool price pressures further. So, a small beat on the CPI front wouldn’t matter too much, I don't think.
Why had the dollar risen so much anyway?
This week’s earlier rally in the dollar had little to do with the Fed’s expected policy decision. It had a lot to do with the sell-off in US bond market, especially at the long end of the curve. This was triggered by that rating downgrade by Fitch, causing investors to demand more for the increased risks associated with holding Treasurys. While a US debt default is unthinkable, it could happen at some future point in time. So, we wouldn’t rule out the possibility of further increases in US bond yields in the near-term. It will be interesting to watch next week’s $103 billion bond auction. This will tell us a lot about investors’ willingness to hold government debt.
That said, the correction potential for the dollar is now high, and investors have already started selling their USD now that the jobs report has come out somewhat on the weaker side with a headline print of 187K vs. 205K eyed and considering the fact there were downward revisions to the tune of 49K in the prior jobs reports. Indeed, JOLTS reported the fewest jobs openings in over 2 year earlier this week.
EUR/USD outlook: Technical analysis
The EUR/USD broke Wednesday’s high of 1.1020 and therefore reclaimed the 1.10 handle again. This is a bullish reversal. Assuming there won’t be any further drama in late US session today, a close around current levels would point to further upside continuation in the week ahead. The next area of liquidity would be above last Thursday big bearish engulfing candle, where undoubtedly many bears will have their stops resting. On the downside 1.1000-1.1020 is now the key support range for the bulls to defend, with further support coming in around 1.0950. As things stand, the path of least resistance looks to be to the upside, we will concentrate more on the upside than downside levels in our future updates next week.
Source: TradingView.com
-- Written by Fawad Razaqzada, Market Analyst
Follow Fawad on Twitter @Trader_F_R
How to trade with City Index
You can trade with City Index by following these four easy steps:
-
Open an account, or log in if you’re already a customer
• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
- Search for the company you want to trade in our award-winning platform
- Choose your position and size, and your stop and limit levels
- Place the trade
This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.
StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.
In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.
StoneX Financial Pte. Ltd. is not under any obligation to update this report.
Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.cityindex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.
ALL TRADING INVOLVES RISKS. LOSSES CAN EXCEED DEPOSITS.
City Index is a trading name of StoneX Financial Pte. Ltd. (“SFP”) for the offering of dealing services in Contracts for Differences (“CFD”). SFP holds a Capital Markets Services Licence issued by the Monetary Authority of Singapore for Dealing in Exchange-Traded Derivatives Contracts, Over-the-Counter Derivatives Contracts, and Spot Foreign Exchange Contracts for the Purposes of Leveraged Foreign Exchange Trading. SFP is also both Derivatives Trading and Clearing member of the Singapore Exchange (“SGX”). SFP is a wholly-owned subsidiary of StoneX Group Inc.
The information provided herein is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to invest, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk.
The information does not represent an offer of, or solicitation for, a transaction in any investment product. Any views and opinions expressed may be changed without an update. To understand the risks and costs involved, please visit the section captioned “Important Information” and the “Risk Disclosure Statement”.
The information herein is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.
StoneX Financial Pte. Ltd. 1 Raffles Place, #18-61, One Raffles Place Tower 2, Singapore 048616. Tel: 6309 1000. Co. Reg. No.: 201130598R.
This advertisement has not been reviewed by the Monetary Authority of Singapore.
© City Index 2024