July’s US employment report to shake the markets

The USD got some support yesterday against its counterparts, with JPY being its main victim. The weakening of the JPY against the USD prompted Japan’s Finance Minister Katsunobu Kato to state that officials are alarmed by currency moves. The warning may imply a possible market intervention as the exchange rate reached levels not seen since late March, yet in our opinion, for the time being, we see such a scenario as remote for now. In the international trade front, US President Trump’s tariff deadline has come to pass, and the US President intensified the tensions in the US trading relationships with various countries. For Canada, he announced a 35% tariff instead of the earlier 25%, for Swiss products a 39% tariff was announced, also higher than the prior 31%. Canada’s PM Carney responded with disappointment for the new US tariffs, while the Swiss government has responded with “great regret” to the US decision. It should be noted that both countries were in negotiations with the US. It should also be noted that New Zealand is now facing a 15% tariff, and Australia celebrates a 10% levy as it’s considered as low as it gets. Overall, the situation is still not clear, and we may see further tensions that could shake the markets.

USD/JPY was on the rise yesterday, aiming for the 151.20 (R1) resistance line. Given the pair’s upward motion over the past six days and the fact that the price action has broken the 149.15 (S1) resistance line, now turned to support, we maintain a bullish outlook for the pair, as long as the upward trendline remains intact. Yet the pair’s price action has broken above the upper Bollinger band and thus was forced to stall in today’s Asian session. Also the RSI indicator remains close to the reading of 70 implying a strong bullish market sentiment on behalf of the market for the pair, yet at the same time may be nearing overbought levels. Should the bulls maintain control as expected, we may see the pair breaking the 151.20 (R1) resistance line, paving the way for the 154.65 (R2) resistance level. Should the bears take over we may see the pair breaking the prementioned upward trendline in a first signal that the upward movement has been interrupted, continue lower to break clearly the 149.15 (S1) support line and start actively aiming for the 146.25 (S2) support level.

Today, we highlight the release of the US employment data for July. The release gains in importance after the Fed’s last interest rate decision, at which Fed Chairman Powell highlighted the importance of the employment data and especially the unemployment rate. The NFP figure is expected to drop to 110k if compared to June’s 147k, the unemployment rate to tick up to 4.2% and the average earnings growth rate to accelerate to 3.8%yy if compared to June’s 3.7%yy. Should the actual rates and figures meet their respective forecasts, we may see the USD slipping as a cooling of the US employment market in the past month would be reported. Yet seldomly the actual rates and figures agree with the forecasts, hence should we see the actual data showing a tighter than expected US employment market we may see the USD gaining. The release is expected to have ripple effects beyond the FX market and could cause market movement for US equities and gold’s price.

S&P 500 edged lower yesterday after hitting a ceiling on the 6420 (R1) resistance line. The index in its downward motion broke he upward trendline guiding it since the 24th of April, hence we switch for the time being our bullish outlook in favour of a sideways motion bias. Should the bulls take over again, like in the case of a weak US employment report for July, we may see the index breaking the 6420 (R1) resistance line and we set as the next possible target for the bulls the 6600 (R2) resistance level. Should the bears be in charge we may see the index breaking the 6140 (S1) support line and open the gates for the 5925 (S2) level.

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Today we get the UK’s nationwide House prices, UK’s and Germany’s final manufacturing PMI figures, Euro Zone’s preliminary HICP rate, the US ISM manufacturing PMI figure and the US final UoM consumer sentiment, all being for July.