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Daily market analysis

NFP surprised markets rose by 517K

February 6, 2023

US stocks declined lower last Friday, posting weekly gains but ended its three-day advance after a volatile Friday session as investors contended with data pointing to a robust labor market.

On Friday, the US Bureau of Labor Statistics (BLS) surprised markets by revealing that the Nonfarm Payrolls (NFP) rose by 517K in January, which came much higher than the markets’ expectation of 185K. Moreover, the Unemployment Rate also dropped to 3.4% from 3.5% prior.

The figure strong US economic figure renewed inflation fears and favored the odds of further rate increases from the Fed. Meanwhile, yields on Treasuries also spiked higher after a surprisingly strong jobs report that should give the Fed room to remain aggressive if inflation stays elevated, sending the US Dollar to rose the most on Friday since late September.

On the Eurozone front, European Central Bank (ECB) President Christine Lagarde signaled that the risks to inflation and growth are more balanced after the bank announced a 0.50% interest rate hike last week by matching the market expectations.

The benchmarks, S&P 500 and Dow Jones Industrial Average both declined lower last Friday but the S&P 500 still notched a weekly gain that took the index to its highest level since August as equities swerve between modest gains and losses. The S&P 500 was down 1.0% daily and the Dow Jones Industrial Average also dropped slightly with a 0.4% loss for the day. All eleven sectors in S&P 500 stayed in negative territory as the Consumer Discretionary sector and the Communication Services sector are the worst performing among all groups, losing 3.11% and 2.22%, respectively. The Nasdaq 100 meanwhile retreated the most with a 1.8% loss last Friday and the MSCI World index was up 1.2% for the day.

Main Pairs Movement

The US dollar advanced sharply last Friday, gathering upside strength during the US trading session, and rose to a new three-week high around the 103.00 mark after a surprisingly strong jobs report from the United States. Investors’ sentiment turned sour as January’s Nonfarm Payrolls report increased speculations that the Fed could raise rates back above Wednesday’s 25 basis points mark.

GBP/USD plunged lower last Friday with a 1.42% loss after the cable witnessed heavy selling and dropped sharply towards the 1.2100 mark after robust US economic data. On the UK front, the Bank of England (BoE) announced a 0.50% interest rate hike by matching the market expectations. Meanwhile, EUR/USD also suffered from heavy losses and collapsed to new 2-week lows near the 1.0800 level amid downbeat market sentiment. The pair was down almost 1.07% for the day.

Gold tumbled sharply with a 2.45% loss for the day after dropping from daily highs at $1918 and collapsing toward the$1870 area during the US trading session, as the US Nonfarm Payrolls report showed that more jobs were added to the economy than expected. Meanwhile, WTI Oil dropped sharply with a 3.53% loss for the day. The US crude oil failed to preserve its upside strength that due to a surprising report from the US Department of Labor.

Technical Analysis

EURUSD (4-Hour Chart)

The EUR/USD pair declined lower on Friday, reversing its initial gains, and retreated sharply towards the 1.0850 level after the release of a solid January US job report. The pair is now trading at 1.0859, posting a 0.46% loss daily. EUR/USD stays in the negative territory amid renewed US Dollar strength, as the greenback was lifted by a surprisingly upbeat US Nonfarm Payrolls report and reached a new two-week high at 102.63 level. The report showed that US Nonfarm Payrolls rise by 517,000 in January, which came in much higher than the market expectation of 185,000. The US labor market shows no signs of weakness so far, therefore further Fed action is expected. In the Eurozone, ECB President Christine Lagarde refrained from committing to any move about the possibility of additional rate actions after March, which is acting as a headwind for the shared currency.

For the technical aspect, RSI indicator 41 figures as of writing, suggesting that the risk skews to the upside as the RSI is recovering towards the mid-line. As for the Bollinger Bands, the price failed to preserve its downside momentum and rebounded slightly higher, therefore some upside movements can be expected. In conclusion, we think the market will be bullish as long as the 1.0830 support line holds. On the downside, a break below that support could bring in additional sellers and open the door for an extended slide toward 1.0780.

Resistance:  1.0930, 1.1020

Support: 1.0830, 1.0780, 1.0722

GBPUSD (4-Hour Chart)

GBP/USD dropped sharply to the 1.2100 area after US Nonfarm Payrolls and January Unemployment Rate was released on Friday. The US Bureau of Labor Statistics revealed that Nonfarm Payrolls rose by 517K in January, much higher than the 185K expected. The unemployment rate dropped to 3.4% with the expectation of 3.6%. The US Dollar rose sharply across the board after the report, currently at 102.90,  while the benchmark 10-year US Treasury bond yield rose 3.65% to 3.519, exerting heavy pressure on GBP/USD. At the time of writing, the pair is trading at 1.2061, posting a 1.33% loss daily.

For the technical aspect, RSI indicator 23  figures as of writing, placed in the oversold zone as the price is staging strong downward movement in the near term. Though the indicator shows strong bearish momentum, traders should be aware of upside correction risk as the RSI indicator is placed in an oversold zone. As for the Bollinger Bands, the expansion of the bandwidth implies huge volatility in prices, which also suggests correction risk. In conclusion, we think the market is in bearish mode as both indicators show bearish potential. The recent below 1.2200 area constitutes the formation of a bearish top pattern on the daily chart, which favors a bearish trend. That said, there is a correction risk as GBP/USD dropped sharply in the short term. For the downtrend scenario, if the price drop below 1.2000, it may trigger some follow-through selling and drag the pair further toward the next support at 1.1860.

Resistance: 1.2270, 1.2426, 1.2493

Support: 1.2000, 1.186

XAUUSD (4-Hour Chart)

Gold price extended its slide from the previous day and touched its lowest level since January 10 below $1,870 on Friday as US Nonfarm Payrolls and January Unemployment Rate surpassed the expectation. The US Bureau of Labor Statistics revealed that Nonfarm Payrolls rose by 517K in January, much higher than the 185K expected. The unemployment rate dropped to 3.4% with the expectation of 3.6%. The US labor market shows no signs of weakness, therefore further action from Fed is expected. The US Dollar rose sharply across the board after the report, currently at 102.94, while the benchmark 10-year US Treasury bond yield rose 4.04% to 3.532, exerting heavy pressure on Gold prices. At the time of writing, the pair is trading at$1,865, posting a 2.47% loss daily.

For the technical aspect, RSI indicator 26 figures as of writing, placed in the oversold zone as the price is staging downward solid movement in the near term. Though the indicator shows strong bearish momentum, traders should be aware of upside correction risk as the RSI indicator is placed in an oversold zone. As for the Bollinger Bands, the expansion of the bandwidth implies huge volatility in prices. An upside correction could occur as the indicator shows high volatility and the price drop sharply. In conclusion, the market is in bearish mode as both indicators show bearish potential. A failure to defend the critical support at \$1,900 suggests that the bulls have surrendered. The selling pressure that comes from buyers could drag Gold’s price further.

Resistance: 1900, 1920, 1957

Support: 1830, 1800

Economic Data

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