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Daily market analysis

Strong US jobs data boosts economic transition optimism

February 7, 2023

US stocks declined lower on Monday, extending their previous slide, and continued to give back some of this year’s gains amid a dismal market mood. Hawkish Fed bets underpin the US Treasury bond yields and US Dollar, which exerted bearish pressure on equity markets. Meanwhile, traders are waiting to see if Jerome Powell will dampen the bullish reaction to his recent remarks as the Federal Reserve keeps its firm grip on policy. Policymakers from the US appear optimistic about the economic transition after witnessing strong United States employment and activity data on Friday.

On top of that, the political tensions between US and China weighed on the market mood, further fueling demand for the safe-haven US Dollar. On the Eurozone front, European Central Bank (ECB) ’s Robert Holtzmann said that monetary policy must continue to show its teeth until we see a credible convergence to our inflation target.

The benchmarks, S&P 500 and Dow Jones Industrial Average both declined lower on Monday as the S&P 500 remained under pressure as China-linked fears join fresh hawkish concerns over Fed. The S&P 500 was down 0.6% daily and the Dow Jones Industrial Average also dropped slightly with a 0.1% loss for the day.

Nine out of eleven sectors in the S&P 500 stayed in negative territory as the Communication Services sector and the Information Technology sector are the worst performing among all groups, losing 1.31% and 1.22%, respectively. The Nasdaq 100 meanwhile retreated the most with a 0.9% loss on Monday and the MSCI World index was down 1.1% for the day.

Main Pairs Movement

The US dollar advanced higher on Monday, extending its last Friday rally, and climbed to fresh February highs against most major rivals near the 103.70 level amid a risk-averse environment. The upbeat economic report from the US fueled speculation that the US Federal Reserve (Fed) will keep tightening its monetary policy while chances of a rate cut by year-end decreased sharply. Further fueling the dismal mood were mounting tensions between the United States and China.

GBP/USD declined lower on Monday with a 0.31% loss after the cable preserved downside traction and refreshed its daily low below the 1.2020 mark amid a dismal market mood. On the UK front, the Bank of England Chief Economist Huw Pill said that UK policymakers are prepared to do more to get inflation back to target. Meanwhile, EUR/USD also stumbled to multi-week lows at around the 1.0720 area amid US Dollar strength. The pair was down almost 0.65% for the day.

Gold advanced slightly with a 0.13% gain for the day after rebounding from a one-month low at $1864 during the US trading session, but the recent hawkish bias over the Fed’s next move should keep the Gold sellers hopeful. Meanwhile, WTI Oil rebounded higher with a 1.42% gain for the day. WTI posted a modest intraday advance and settled at $74.30.

Technical Analysis

EURUSD (4-Hour Chart)

The EURUSD came under renewed bearish pressure and declined to its lowest level in nearly a month below 1.0737 as of writing. The risk-averse market environment, as reflected by the sharp decline seen in Wall Street’s main indexes, provides a boost to the US Dollar and weighs on the pair. Risk aversion dominates financial markets at the beginning of the new week, pushing the US Dollar further up across the FX board. The upbeat January Nonfarm Payrolls report showed that the US added 517K new job positions in the month, more than doubling expectations, while the Unemployment Rate contracted to 3.4%, despite an increase in the Labor Force Participation Rate to 62.4%. The mounting speculation that the US Federal Reserve will continue to hike rates in the upcoming months not only diminished the chances of a rate cut by year-end, but pressured the EURUSD pair.

From the technical perspective, the four-hour scale RSI indicator figured 28 as of writing, suggesting that the pair was under heavy selling pressure. As for the Bollinger Bands, the pair is pricing below the 20-period moving average and the gap between upper and lower bands became larger, indicating that the pair would move in a volatile path.

Resistance: 1.0930, 1.1022

Support: 1.0714, 1.0662, 1.0508

GBPUSD (4-Hour Chart)

GBPUSD lost upside traction and turned south on the day and was pricing around 1.2009 as of writing. With major indexes opening deep in the red on Monday, the US Dollar continues to gather strength against its rivals and forces the pair to stay on the back foot. Last Friday, the US Nonfarm Payrolls rose by 517K in January, compared to the market expectation of 185K, and the Unemployment Rate declined to 3.4% from 3.5% in December. The impressive job report forced investors to reassess the probability of one more 25 basis points Federal Reserve rate hike in May and helped the US Dollar outperform its rivals. At the same time, the benchmark 10-year US Treasury bond yield climbed toward 3.6, further boosting the greenback.

From the technical perspective, the four-hour scale indicator RSI indicator figured 25 at the time of writing, suggesting that investors should be aware of a corrective rebound while the market was amid a strong oversold mood.  As for the Bollinger Bands, the pair was pricing along with the lower band and the gap size got wider, indicating that the strong selling pressure would persist for a while.

Resistance: 1.2265, 1.2401, 1.2493

Support: 1.1924, 1.1859

XAUUSD (4-Hour Chart)

Gold price remains under selling pressure on Monday. Earlier in the European trading session, the Gold price peaked at $1,881.30, and the price resumed to decline amid the broad US Dollar demand from then. The US dollar extends its post-NFP advance on the speculation that the Fed will keep hiking rates for some time, while the chances for a year-end rate cut are reduced. The US dollar index is currently placed at 103.68,  while the benchmark 10-year US Treasury bond yield rose 3.06% to 3.634%, weighing on Gold price. At the time of writing, the pair is trading at $1,867.43, posting a 0.09% gain daily.

For the technical aspect, the RSI indicator is 32 figures as of writing, hovering around 30 as the price remains under selling pressure in the near term. As for the Bollinger Bands, the price is moving between the downward moving average and the lower band. The bearish trend could persist. On the other hand, the wide-separated bandwidth shows the huge volatility of Gold price may be. Traders should be aware of the upside correction risk. In conclusion, we think 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 price is currently holding above support at  $1,860, which seems unstable for now. If the price drops below the current support, it may trigger some technical selling and drag the price deeper.

Resistance: 1900, 1920, 1957

Support: 1860, 1830, 1800

Economic Data

CurrencyDataTime (GMT + 8)Forecast
AUDRBA Interest Rate Decision (Feb)11:303.35%
AUDRBA Rate Statement11:30 

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