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Interest rate hike expectations remain high, market ignores the NFP report

September 5, 2022

US stocks declined on Friday, continuing its previous slide and suffered a third-week loss despite the US Nonfarm Payrolls data showing some signs of easing in the labour market. The US Nonfarm Payrolls rise by 315K in August, but at a more moderate pace following the 528k increase in July. However, the growing expectations of a supersized 75 bps Fed rate hike move at the September policy meeting continued to undermine the equity market, as Fed Chair Jerome Powell said that the central bank will raise rates further and keep them elevated until price gains slow. In the Eurozone, the news reported that the gas pipeline of Russia’s Gazprom to Europe can’t reopen as planned on Saturday has weighed heavily on market sentiment, as a new technical issue has been discovered. On top of that, the Eurozone money markets are now pricing in a roughly 80% chance of a 75 basis-point ECB rate hike this week.

The benchmarks, S&P 500 and Dow Jones Industrial Average both suffered daily losses on Friday as the US job data did little to alter the views on the Federal Reserve’s next move. The S&P 500 was down 1.1% daily and the Dow Jones Industrial Average also dropped with a 1.1% loss for the day. Ten out of eleven sectors stayed in negative territory as the Communication Services and the Real Estate sectors are the worst performing among all groups, losing 1.86% and 1.68%, respectively. The Nasdaq 100 meanwhile fell the most with a 1.4% loss on Friday and the MSCI World index was down 0.8% for the day.

Main Pairs Movement

The US dollar edged lower on Friday, extending its previous slide and witnessing fresh selling after the release of the mixed US Nonfarm Payrolls data. However, the DXY index regained positive traction during the US trading session, then rebounded back to the 109.7 area to recover most of its daily losses. Traders now see a 75% chance of a third straight 75 basis points rate hike in September and expect rates to peak at 3.90% in March 2023, which gave recovery strength to the safe-haven greenback.

GBP/USD edged lower with a 0.30% loss on Friday despite the weaker US dollar across the board. The Federal Reserve’s aggressive tightening of monetary policy and a bleak outlook for the UK economy continued to exert bearish pressure on the cable. The GBP/USD pair climbed to a daily high near the 1.159 level in the US session but then retreated towards the 1.150 mark to erase its daily gains. Meanwhile, EUR/USD failed to preserve its upside traction after the release of US job data and remained under slightly bearish pressure near the 0.9950 level. The pair was up almost 0.10% for the day.

Gold surged with a 0.90% gain for the day after climbing to a daily top near the $1,718 mark in the early US trading session, as the higher US Unemployment Rate helped the precious metal to extend its bullish correction. Meanwhile, WTI oil failed to extend its rebound after rising to the $89 area during the US session, as the talks surrounding the US-Iran oil deal contrast with the expectations of output cut from the OPEC+.

Technical Analysis

EUR/USD (4-Hour Chart)

The EUR/USD pair advanced on Friday, regaining some bullish momentum and recovered from the 0.991 area that touched yesterday following the release of the mixed US monthly jobs report. The pair is now trading at 1.0001, posting a 0.58% gain daily. EUR/USD stays in the positive territory amid the broad-based US dollar weakness, as the falling US Treasury bond yields and the risk-on market environment both exerted bearish pressure on the greenback and lifted the EUR/USD pair higher. The US Nonfarm Payrolls rose by 315,000 in August, which came in slightly better than the market expectation of 300,000. But expectations that the Fed will stick to its aggressive policy tightening path should limit the losses for the US dollar. For the Euro, the dollar dynamics and geopolitical concerns will remain the key focus for the shared currency.

For the technical aspect, the RSI indicator is 53 as of writing, suggesting that the 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 upside traction should persist. In conclusion, we think the market will be bullish as the pair is heading to test the 1.0033 resistance. A break above that level could open the road for additional gains.

Resistance:  1.0033, 1.0054, 1.0082

Support: 0.9979, 0.9937, 0.9917

GBP/USD (4-Hour Chart)

The GBP/USD pair edged higher on Friday, staging an upward correction and touched a daily high near 1.159 level during the US trading session amid the positive shift witnessed in risk sentiment. At the time of writing, the cable stays in positive territory with a 0.27% gain for the day. The mixed US job data today has undermined the US dollar and helped the GBP/USD pair to find demand, as the slightly better-than-anticipated headline NFP print was offset by an unexpected rise in the unemployment rate. But markets are still pricing in a greater chance of a supersized 75 bps Fed rate hike move at the September policy meeting. For the British pound, the gloomy outlook for the UK economy continued to act as a headwind for the currency.

For the technical aspect, the RSI indicator is 38 as of writing, suggesting the bullish shift in the pair’s near-term bias as the RSI started to rise sharply toward 50. As for the Bollinger Bands, the price witnessed some buying and climbed toward the moving average, therefore the upside traction should persist. In conclusion, we think the market will be bullish as long as the 1.1534 support line holds. On the upside, a four-hour close above the 1.1684 resistance will let the buyers show their interest and lift the pair toward 1.1700.

Resistance: 1.1684, 1.1738, 1.1853

Support: 1.1534, 1.1476

XAU/USD (4-Hour Chart)

Gold catches some upside traction and surges to a daily high in the US session on Friday as the US dollar and US yields slide from high. It seems that gold price has snapped a five-day losing streak to a multi-month low and is currently placed around the $1,715 level.

For the technical aspect, the RSI indicator is 50 as of writing. The RSI advanced from the oversold zone to mid-line as the pair staged a strong upside correction. As for the Bollinger Bands, the gold prices surged and crossed above the moving average, however, the moving average is still downward and traders should wait for more signals before making any aggressive bets. The support at the $1,680 level seems to be safe for now, which is a crucial support region for the gold prices since May 2020. If gold price closes negative below, it may drop to a two-year low, which could be a major blow. In conclusion, despite the rebound on Friday, we think the market is still under pressure as there is no clear evidence that gold price has formed an upward trend. For more clues on the Fed rate hike, eye on tier 1 economic figures from the US.

Resistance: 1765, 1803

Support: 1685

Economic Data

CurrencyDataTime (GMT + 8)Forecast
AUDRetail Sales (MoM)09:301.3%
GBPComposite PMI (Aug)16:3050.9
GBPServices PMI (Aug)16:3052.5