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Daily market analysis

After Friday’s mixed jobs report, markets await this week’s inflation data

November 7, 2022

US stocks advanced higher on Friday, regaining upside momentum and ending their previous slide as investors weighed mixed jobs figures and awaited next week’s inflation data for more clues on when the Federal Reserve would be able to slow down its pace of rate hikes. The Nonfarm Payrolls in the US rose by 261,000 in October, which came in much higher than the market expectation of 200,000. However, further details revealed that the Unemployment Rate edged higher to 3.7% from 3.5%, signalling that the labour market is easing amid the most aggressive Federal Reserve tightening cycle.

Therefore, the theory of slower rate hikes in December has been brought back with signs of a potential easing in the labour market conditions, which further undermined the US dollar. Markets focus now shifts to the release of the US Consumer Price Index (CPI) report for October, which will be important to forecast market moves.

In the Eurozone, the European Central Bank (ECB) President Christine Lagarde said on Friday that they will not let high inflation become entrenched and have to raise rates to levels that will deliver the 2% medium-term inflation target.

The benchmarks, S&P 500 and Dow Jones Industrial Average both climbed higher on Friday as the S&P 500 regained positive traction and halted a four-day slide. The S&P 500 was up 1.4% daily and the Dow Jones Industrial Average also advanced higher with a 1.3% gain for the day. All of the eleven sectors in the S&P 500 stayed in positive territory as the Materials sector and the Financials sector are the best performing among all groups, rising 3.41% and 1.87%, respectively. The Nasdaq 100 meanwhile climbed the most with a 1.6% gain on Friday and the MSCI World index was up 1.9% for the day.

Main Pairs Movement

The US dollar tumbled on Friday, witnessing heavy downside momentum and has difficulty finding its feet near the 110.5 level during the US trading session despite the robust US Nonfarm Payrolls (NFP) data. The downbeat US unemployment rate report and wage inflation data have shown the first signs of easing in the US labour market, which has tamed expectations of further aggressive tightening by the Federal Reserve and exerted bearish pressure on the greenback.

GBP/USD surged higher on Friday with a 1.96% gain after the cable extended its rally to daily highs around the 1.1380 mark amid broad-based US dollar weakness. On the UK front, investors are awaiting more developments on tightening fiscal policy measures in Britain led by UK Prime Minister Rishi Sunak and Chancellor Jeremy Hunt. Meanwhile, EUR/USD staged a goodish rebound and refreshed its daily high above the 0.9960 mark amid a weaker US dollar and an improvement in market sentiment. The pair was up almost 2.10% for the day.

Gold advanced with a 3.21% gain for the day after soaring to a three-week high above the $1,680 mark during the late US trading session, as the speculations that the Fed would tighten in smaller rate increases have weighed on the US dollar and lifted the Gold higher. Meanwhile, WTI Oil surged with a 5.04% gain for the day as crude oil prices hit three-week highs above the $92.00 area.

Technical Analysis

EURUSD (4-Hour Chart)

The EURUSD has gathered bullish tractions and climbed above 0.9900 level as of writing, reaching fresh weekly highs, as US Dollar stays under strong selling pressure in the risk-positive market environment and fueled the pair’s rally although US Nonfarm Payrolls surprised to the upside in October. Earlier, the US Bureau of Labor Statistics released the October jobs report. Nonfarm Payrolls rose by 261K, compared to the expected 200K. However, a strong NFP report failed to attract buying for the greenback, the DXY index tumbled with 1.75% daily losses and dropped to a level below 111.0, underpinning the pair. Further data saw the Unemployment Rate ticked higher to 3.7% (from 3.5%) and the key Average Hourly Earnings, a proxy for inflation via wages, increased by 0.4% MoM and 4.7% from a year earlier. Furthermore, the sharp upsurge witnessed in the EURGBP cross on Thursday showed that the Euro(EUR) managed to capture some of the capital outflows out of the British pound. The Bank of England (BOE) said the peak rate is likely to be lower than 5.2% priced into markets and investors assessed that comment as a sign of a less aggressive tightening stance.

From the technical perspective,  the four-hour scale RSI indicator surged to 58 figures as of writing, suggesting that the pair amid strong bullish momentum. As for Bollinger Bands, the pair broke through the 20-period moving average and was pricing in the upper area. Therefore, we think the positive traction would persist in the near term to challenge the 1.0000 psychological level.

Resistance:  1.0000, 1.0094

Support: 0.9736, 0.9668, 0.9551

GBPUSD (4-Hour Chart)

The GBPUSD managed to advance to the boundaries of 1.1300 the figure at the end of the week, as the market amid improved risk sentiment and further declined the demand for the safe-haven greenback, where the pair was pricing at 1.1285 level as of writing. The broad-based appetite for the risk-associated universe lent the Quid extra legs on Friday and helped the pounds recoup part of the BoE-induced sell-off recorded on Thursday. The US Dollar remains well on the defensive despite the US economy creating more jobs than expected in October (261K), while the Unemployment Rate edged higher to 3.7%. In the UK docket, the Construction PMI improved from 52.3 to 53.2 in October, while BoE Chief Economist H.Pill suggested earlier in the session that markets should “re-anchor” their expectations around the policy rate following the recent political and financial crisis.

From the technical perspective, the four-hour scale RSI indicator rebounded to 43 figures as of writing, suggesting that the cables attracted some buying during the RSI stay in the oversold zone. As for the Bollinger Bands, the price was still priced lower than the 20-period moving average, which is a signal that the strength of the rebound is weaker. As a result, we think the pair was more favoured to the downside path and there would be a pullback to test the 1.1163 support.

Resistance: 1.1417, 1.1623

Support: 1.1163, 1.0953, 1.0632

XAUUSD (4-Hour Chart)

Gold continues to extend its rally in the October US Nonfarm Payrolls report afterwards and was priced at $1673 marks, up by more than 2.60% daily, as growing speculations that an uptick in the rate of unemployment might deter the Federal Reserve from aggressive tightening. Following the release of the Nonfarm Payrolls, the US Dollar falls further. The US economy added 261K jobs, above estimates of 200K, but what probably rocked the boat was that the Unemployment Rate increased by 3.7% from 3.5% in the previous month, signalling that the labour market is easing amid the most aggressive Federal Reserve cycle. In the meantime, US Treasury bond yields, particularly the 10-year benchmark note rate, almost parked at 4.156%, unchanged. However, what’s worth noting is the inversion of the 2s-10s yield curve, which is used as a leading indicator of upcoming recessions.  

From the technical perspective, the four-hour scale RSI indicator rallied dramatically to 67 figures as of writing, suggesting that the pair amid an upbeat market mood with heavy upside pressure. As for the Bollinger Bands, the gold was pricing above the upper band and the size between upper and lower bands became larger, which is a signal that the bullish tendency would last. Hence, we think the gold would manage to stabilise above the $1675 mark and aim for a $1700 psychological level.

Resistance: 1675, 1700, 1725

Support: 1632, 1615, 1600

Economic Data

CurrencyDataTime (GMT + 8)Forecast
EURECB President Lagarde Speaks16:40