Strong employment data keeps pressure on Fed to raise rates

The greenback jumped on Friday, outperforming against its major counterparts after an extraordinary employment data report, showcasing the tightness of US labour market. More specifically, the US economy added 528k new jobs in July, an amount twice as large as expected by the forecasts, and the total non-farm payrolls figure returned to pre pandemic levels. The unemployment rate, dropped slightly from the 3.6% rate, held steady for months now, to the 3.5% in July and the average hourly earnings also rose to 0.5% mom beating estimates. As a consequence, the stronger than expected jobs reports boosted the dollar and strengthened the market expectations that the Fed will remain hawkish in its plans towards taming inflation. Hence these reports act as conviction in the Fed’s eyes that the US labour force is tight and “allows” them to continue with aggressive rate hikes. Data from the FFF indicates that the market already started appraising the 75-basis point rate hike possibility for the September meeting. Also noteworthy, was Fed Governor Bowman’s comments indicating that she still retains an open mind on the magnitude of hikes depending on how the economy evolves and the importance of allowing information to guide her judgment on how big the increases will be. This follows closely the narrative adopted by numerous Fed speakers during last week showing some sort of consensual agreement towards their future plans. WTI’s slacking performance and the commodities price during today’s Asian’s session seems to be stuck below $90 per barrel after a wide drop last week given than US oil inventories seem to be on the rise. Gold retracted on Friday mirroring the dollar’s strength after the strong employment data for July which raised questions as to whether the safe haven could continue to attract inflows. We expect the negative correlation of the instruments to continue. US stock markets ended mixed on Friday, as the markets tried to digest July’s US employment data while earnings releases are still expected.

USDIndex jumped to the 106.8 level following the release of the US employment data, during Friday’s session, forming a new higher low as shown by the ascending trendline. We hold a bullish outlook bias for its future price action and supporting our case is the RSI indicator showing a value of 60, underlying the positive sentiment in the market. Also, the price movement near the upper Bollinger band adds to the case. Should the bulls reign over, we may see the break of the 106.82 (R1) resistance line and move towards the 107.64 (R2) resistance level. Should the bears take over, we would require seeing the break below the ascending trendline and the 105.10 (S1) support level and a move towards the 104.46 (S2) support base.

USD/CAD price action broke above the previous resistance of 1.2342 level during Friday after the strengthening of the greenback, however it retraced since then. We hold a bullish outlook bias for the future price action of the pair and supporting our case is the RSI indicator registering a value of 64. Should the pair find extensive buying orders along its path, we may see the break above the 1.2999 (R1) resistance level and a move close to the 1.3072 (R2) resistance barrier. Should the selling interest overwhelm, we may see the break below the 1.2785 (S1) support level and move towards the 1.2729 (S2) support base.

Other highlights for the day:

Today we note the release of the Eurozone’s Sentix Indicator where if the result meets the expectations we could see the EUR get some support.                        

USDIndex H4 Chart

Support: 105.10 (S1), 104.48 (S2), 103.82 (S3)

Resistance: 106.82 (R1), 107.64 (R2), 108.53 (R3)

USD/CAD H4 Chart

Support: 1.2785 (S1), 1.2729 (S2), 1.2662 (S3)

Resistance: 1.2999 (R1), 1.3072 (R2), 1.3165 (R3)

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