Daily market analysis

All Eyes on the US Jobs Reports, Concerns on Inverted Yield Curve.

August 5, 2022

US stocks wavered on Thursday as traders parsed various corporate earnings against a backdrop of aggressive interest-rate hikes by global central banks. The US yield curve continued to be inverted as recession fears persisted.

The S&P 500 ended the session little changed after fluctuating throughout the day. The Nasdaq 100 closed up higher for the second straight day after swinging between modest gains and losses. The Nasdaq 100 closed up higher for the second straight day after swinging between modest gains and losses.

A flurry of economic data released this week assuaged fears of a downturn while hinting at stabilising growth. But the bond market, especially the persistently inverted Treasury yield curve, is flashing warnings on the economy amid a global wave of monetary tightening. All eyes will be on the US jobs report on Friday for further clues about the Federal Reserve’s path of rate hikes.

Elon Musk said he sees signs that the global economy has gone “past peak inflation.” Speaking at the electric-vehicle maker’s annual shareholder meeting, Musk said the company’s commodity and component costs are trending downward over the next six months. He also reiterated prior comments that he expects a mild recession to hit that could last 18 months.

“The trend is down, which suggests we are past peak inflation,” Musk said at Tesla’s Austin headquarters and factory. “I think inflation is going to drop rapidly” at some point in the future, he said.

Global central banks have embarked on a path of policy-tightening as inflation pressures consumers and corporate bottom lines. In the US, consumer prices increased by 9.1% in June from a year earlier, and Federal Reserve officials say the price gains have yet to slow. The next print on inflation comes on Aug 10.

Main Pairs Movement

The dollar fell against most of its major rivals, ending the day near its recent lows, usually a sign of further declines ahead in the near term. The fear of a global recession returned after the Bank of England announced its latest decision on monetary policy. The central bank raised interest rates by 50bps to 1.75% as expected.

But politicians have revised their inflation forecast upwards, expecting a recession in the next five quarters. A Federal Reserve official said that recession risks have increased in the US and that interest rates should continue to rise at least through this year and the first half of 2023.

GBP/USD recovered some of its losses from the past two days and advanced towards 1.2170 in early European trading on Thursday. EUR/USD benefited from the broad dollar’s weakness and settled around 1.0250.
The AUD/USD advanced and hovered around 0.6970, bolstered by gold, as the bright metal reached fresh one-month highs in the US$1,790 price zone. The US dollar strengthened against the Canadian dollar, climbing to around 1.2860 before settling at that level. The barrel of WTI currently trades at US$88.40 a barrel.

XAU/USD has pushed down within its weekly bullish correction to mark a high of US$1,794.23. Gold price increased as US bond yields decreased and the Bank of England issued a warning that the UK’s economy might be headed for a recession later this year due to inflation could reach 13%.

Technical Analysis

EURUSD (4-Hour Chart)

The EUR/USD pair advanced on Thursday, regaining upside momentum and rebounded from a weekly low below the 1.013 mark that touched yesterday amid the current rebound in the risk complex. The pair is now trading at 1.02106, posting a 0.46% gain on a daily basis. EUR/USD stays in the positive territory amid weaker US dollar across the board, as the falling US Treasury bond yields and the disappointing Jobless Claims data exerted bearish pressure on the greenback. The US Weekly Initial Jobless Claims rise to 260K, which came in slightly worse than the market expectation of 259K. But the recent hawkish stance from several Fed speakers and expectations for further rate hikes in the next months should limit the losses for the greenback. For the Euro, the IHS S&P Global Germany Construction PMI fell to 43.7 in July.

For the technical aspect, the RSI indicator figures as of writing, suggesting that upside is more favoured as the RSI stays above the mid-line. As for the Bollinger Bands, the price preserved its upside strength and crossed above the moving average, therefore the bullish momentum should persist. In conclusion, we think the market will be bullish as the pair is testing the 1.0221 resistance line. A break above that level might bring additional gains to the pair.

Resistance: 1.0221, 1.0287, 1.0438

Support: 1.0150, 1.0082, 0.9991

GBPUSD (4-Hour Chart)

The GBP/USD pair edged lower on Thursday, coming under selling pressure and dropped to a daily low below 1.208 level after the announcement of the Bank of England’s policy decision. At the time of writing, the cable stays in negative territory with a 0.17% loss for the day. The BoE decided to raise the benchmark rate by 50 bps to 1.75% as widely expected, which was fully priced in the markets and prompted fresh selling around the cable. For the British pound, the currency remained under bearish momentum amid the dovish BoE policy decision. Investors continue to anticipate further rate hikes after this week. Moreover, BOE Governor Bailey also said that he expects the UK economy to tip into recession in Q4 in the press conference, therefore the pound is likely to have a difficult time finding demand.

For the technical aspect, the RSI indicator is 48 as of writing, suggesting that the bull is preserving strength as the RSI climbs toward the mid-line. For the Bollinger Bands, the price failed to touch the lower band and started to rise, indicating that some upside traction can be expected. In conclusion, we think the market will be bullish as the pair is heading to re-test the 1.2178 resistance line. On the upside, additional gains can be expected if the pair breaks above the aforementioned resistance.

Resistance: 1.2198, 1.2277, 1.2317

Support: 1.2050, 1.2002, 1.1897

USDCAD (4-Hour Chart)

Despite the US dollar coming under selling pressure amid dismal Initial Jobless Claims data on Thursday, the pair USD/CAD witnessed some upside momentum and climbed to a daily top above the 1.287 mark in the early US trading session. USD/CAD is trading at 1.28671 at the time of writing, rising 0.21% on a daily basis. The market focus now shifts to the Canadian employment conditions report and US Nonfarm Payrolls for July this Friday, as the market mood is mixed after US House Speaker Pelosi’s trip to Taiwan. On top of that, the falling crude oil prices also undermined the commodity-linked loonie and pushed the USD/CAD pair higher as WTI tumbled back to the US$88 per barrel area. Investors started to seek safety as the regional tensions have escalated.

For the technical aspect, the RSI indicator is 51 as of writing, suggesting the pair’s indecisiveness in the near term as the RSI indicator stays near. For the Bollinger Bands, the price lost its upside strength and dropped toward the moving average, therefore a continuation of the downside trend could be expected. In conclusion, we think the market will be bearish as long as the 1.2885 resistance line holds. The falling RSI also reflects bear signals.

Resistance: 1.2885, 1.2944, 1.2986

Support: 1.2823, 1.2785

Economic Data

CurrencyDataTime (GMT + 8)Forecast
USDNonfarm Payrolls (Jul)20:30250K
USDUnemployment Rate (Jul)20:303.6%
CADEmployment Change (Jul)20:3020.0K
CADIvey PMI (Jul)22:0060.3