US Shares and Dollar Slide on Mixed NFP Data

5 September 2022, 02:22

Market Focus

US stocks declined on Friday, continuing their previous slide and suffering a third week of losses despite the US Nonfarm Payrolls data showing some signs of easing in the labour market. The US Nonfarm Payrolls rose by 315K in August, but at a more moderate pace following the 528k increase in July. However, the growing expectations of a supersized 75 bps Fed rate hike move at the September policy meeting continues to undermine the equity market, as Fed Chair Jerome Powell said that the central bank will raise rates further and keep them elevated until price gains slow. In the Eurozone, the news that the gas pipeline of Russia’s Gazprom to Europe can’t reopen as planned on Saturday has weighed heavily on market sentiment. On top of that, the Eurozone money markets are now pricing in a roughly 80% chance of a 75 basis-point ECB rate hike this week.

The benchmark S&P 500 and Dow Jones Industrial Average both suffered daily losses on Friday as US jobs data did little to alter the views on the Federal Reserve’s next move. The S&P 500 was down 1.1% and the Dow Jones Industrial Average also dropped 1.1% for the day. Ten out of eleven sectors stayed in negative territory with the Communication Services and the Real Estate sectors the worst performing among all groups, losing 1.86% and 1.68%, respectively. The Nasdaq 100 meanwhile fell the most with a 1.4% loss on Friday, while the MSCI World index was down 0.8%.

Main Pairs Movement

The US dollar edged lower on Friday, extending its previous slide with fresh selling after the release of the mixed US Nonfarm Payrolls data. However, the DXY regained positive traction during the US trading session, then rebounded back to the 109.7 area to recover most of its daily losses. Traders now see a 75% chance of a third straight 75 basis points rate hike in September and expect rates to peak at 3.90% in March 2023, which gives recovery strength to the safe-haven greenback.

GBP/USD edged lower with a 0.30% loss on Friday despite the weaker US dollar across the board. The Federal Reserve’s aggressive tightening of monetary policy and a bleak outlook for the UK economy continued to exert bearish pressure on Cable. The GBP/USD pair climbed to a daily high near the 1.159 level in the US session, but then retreated towards the 1.150 mark to erase its daily gains. Meanwhile, EUR/USD failed to preserve its upside traction after the release of US job data and remained under slightly bearish pressure near 0.9950 level. The pair was up almost 0.10% for the day.

Gold surged 0.90% for the day after climbing to a daily top near $1718 in the early US trading session, as the higher US Unemployment Rate helped the precious metal to extend its bullish correction. Meanwhile, WTI oil failed to extend its rebound after rising to $89 area during the US session, as the talks surrounding the US-Iran oil deal contrasted with the expectations of an output cut from OPEC+.

Technical Analysis

EURUSD (4-Hour Chart)

The EUR/USD pair advanced on Friday, regaining some bullish momentum and recovering from the 0.991 area that it touched yesterday following the release of the mixed US monthly jobs report. The pair is now trading at 1.0001, posting a 0.58% gain on a daily basis. EUR/USD stays in the positive territory amid the broad-based US dollar weakness, as the falling US Treasury bond yields and the risk-on market environment both exerted bearish pressure to the greenback and lifted the EUR/USD pair higher. The US Nonfarm Payrolls rose by 315,000 in August, which came in slightly better than the market expectation of 300,000. Expectations that the Fed will stick to its aggressive policy tightening path should limit the losses for the US dollar. For the Euro, the dollar dynamics and geopolitical concerns will remain the key focus for the shared currency.

On the technical side, the RSI is at 53 as of writing, suggesting that the upside is more favoured as the RSI stays above the midline. As for the Bollinger Bands, the price preserved its upside strength and crossed above the moving average, therefore the upside traction should persist. In conclusion, we think the market will be bullish as the pair is heading to test the 1.0033 resistance. A break above that level could open the road for additional gains.

Resistance:  1.0033, 1.0054, 1.0082

Support: 0.9979, 0.9937, 0.9917

GBPUSD (4-Hour Chart)

The GBP/USD pair edged higher on Friday, staging an upward correction and touching a daily high near the 1.159 level during the US trading session amid the positive shift witnessed in risk sentiment. At the time of writing, Cable stays in positive territory with a 0.27% gain for the day. The mixed US job data today has undermined the US dollar and helped the GBP/USD pair to find demand, as the slightly better-than-anticipated headline NFP print was offset by an unexpected rise in the unemployment rate. However, markets are still pricing in a greater chance of a supersized 75 bps Fed rate hike move at the September policy meeting. For the British pound, the gloomy outlook for the UK economy continued to act as a headwind for the currency.

Meanwhile, the RSI is at 38, suggesting that the bullish shift in the pair’s near-term bias as the RSI started to rise sharply toward 50. As for the Bollinger Bands, the price witnessed some buying and climbed towards the moving average, therefore the upside traction should persist. In conclusion, we think the market will be bullish as long as the 1.1534 support line holds. On the upside, a four-hour close above the 1.1684 resistance will let the buyers show their interest and lift the pair toward 1.1700.

Resistance: 1.1684, 1.1738, 1.1853

Support: 1.1534, 1.1476

XAUUSD (4-Hour Chart)

Gold caught some upside traction and surged to a daily high in the US session on Friday as the US dollar and US yields slid from their high. It seems that gold prices have snapped a five-day losing streak to multi-month lows and is currently placed around the $1,715 level.

Meanwhile, the RSI is at 50 as of writing. The RSI advanced from the oversold zone to the midline as the pair staged a strong upside correction. As for the Bollinger Bands, gold prices surged and crossed above the moving average, however, the moving average is still downward so traders should wait for more signals before making any aggressive bet. The support at $1,680 level seems to be safe for now, which is a crucial support region for gold price since May 2020. If gold price closes negative below, it may drop to two-year low, which could be a major blow. In conclusion, despite the rebound on Friday, we think the market is still under pressure as there is no clear evidence that gold price has formed an upward trend. For more clues on Fed rate hike, keep an eye on coming tier 1 economic figures from the US.

Resistance: 1765, 1803

Support: 1685