Market Focus

The broad U.S. equity market closed lower on Friday’s trading, but most indices closed the week with gains. Dow gained 0.8% over the week, S&P 500 gained 1.2% over the week, and Nasdaq gained 0.1% over the week. Despite the Senate passing a short-term extension to the debt limit on Thursday, market participants are still affected by the looming concerns over inflation and soaring short-term U.S. treasury yields.

Cotton and oil prices have soared over the past week. Cotton has been trading at its highest levels in about a decade, while oil prices have spiked to a seven-year high. Soaring commodity prices will weigh on inflation concerns. On the other hand, the U.S. 10-year yield has advanced through 1.6% during Friday, triggering bearish sentiment across markets.

This week’s economic docket is packed with important data releases from Britain and the U.S. The U.K. unemployment rate and monthly GDP will be released on Tuesday and Wednesday respectively. Meanwhile, the U.S. will be releasing CPI and PPI figures over Wednesday and Thursday. FOMC minutes will be released on Wednesday as well.

Main Pairs Movement

The highly-anticipated US Nonfarm Payrolls (NFP) rose by 194,000 in September, missing the market expectation of 500,000 by a wide margin. The greenback came under modest selling pressure after the report was released. US dollar index posted a daily low at 93.940.

On a positive note, August’s print of 235,000 got revised higher to 366,000. Further details of the publication revealed that the Unemployment Rate declined to 4.8% from 5.2% in August, compared to analysts’ estimate of 5.1%. Additionally, the Labor Force Participation Rate edged lower to 61.6% from 61.7%. The wage inflation, as measure by the Average Hourly Earnings, rose 4.6% on a yearly basis, as expected.

The mixed US data did little to the dollar’s strength. Most of the main pairs remain at familiar levels, except for USD/CAD, which plummeted amid the surging oil price. Meanwhile, USD/JPY rose due to the so-called ‘Kishida Shock’, which refers to Japan’s new president Fumio Kishida and his redistribution policies.

XAU/USD lingered around $1750 to $1760 throughout the day. Though once gold price surged to $1781, right after the NFP was released, it was soon back to the thin price range. Gold is trading at $1758.20 as of writing. WTI climbed nearly 1% today, bouncing off once at $80.00, the first time since October 2014. The 10-year US Treasury Yield rose around 2%, breaching the 1.600 threshold.

Technical Analysis

USDJPY (4 Hour Chart)

The Fed’s looming bond taper and the resulting higher Treasury rates are the main order of market business. The USD/JPY will continue to rise as long as Treasury yields push higher. Despite dismal September job numbers, markets remain convinced that the Fed will keep its word and begin a bond program reduction this year.

The USD/JPY is close to the top of its three-year range. Except for the February and March 2020 panic spikes, and a few days in April 2019, the last time the pair spent any time above 112.00 was in the second half of 2018. The area above 112.00 has no recent technical impediments to a rise in the USD/JPY. However, on the flip side, we have instant support for the pair at 112.00, followed by 110.65. There was also strong resistance during July and August. 109.15 is the most robust support for the pair since June.

Resistance: 114.55 (Oct. 2018 high), 118.60 (Jan. 2017 high)

Support: 112.00, 110.65, 109.15

EURUSD (4 Hour Chart)

The Euro is attempting to bounce up from 14-month lows at 1.1535, reaching session highs at 1.158, favoured by a weaker-than-expected U.S. Nonfarm payrolls report. The pair, however, remains on the defensive, after having depreciated about 0.5% in a three-day decline. The Greenback is pulling back against its main peers on Friday, weighed by worse-than-expected U.S. private employment numbers. Furthermore, the unemployment rate declined to 4.8% from 5.2% in August.

On the technical front, the RSI continues to trim the weakness at the higher stages, closing around 49, suggesting neutral market movement ahead. For averages, the 15-long indicator has turned its slide to an uptrend, while the 60-long remains on its descent. For the MACD, the indicator continues extending its positive momentum.

On the slip side, we expect the last time low, 1.153, will give the pair short-term support guidance. If it breaks the threshold, we foresee the downside support will eye the psychological level at 1.15.

Resistance: 1.161, 1.1675

Support: 1.153, 1.15

USDCAD (4 Hour Chart)

Loonie plummeted during the New York session, trading at 1.2475, down 0.58% in the day market. It touched its lowest stage since July 30 after the job report showed that the country has now recovered all of the 3 million jobs lost during the pandemic. Meanwhile, the West Texas Intermediate crude oil futures hit $80 per barrel for the very first time since November 2014, whereas the U.S. 10-year Treasury yield is rising and sitting at 1.6% as of writing.

From a technical perspective, the RSI index has slipped into overbought territory at 24.3 as of writing, suggesting a sell-off sentiment at the moment. On the moving average indicator, the 15- and 60-long indicators are still showing downside movement.

Since the Loonie rapidly broke through a critical support levle at 1.25, we expect the next downward support will be last July’s low at 1.2425. On upside, the psychological level at 1.25 will turn into a pivotal resistance for the short-term, behind 1.256.

Resistance: 1.25, 1.256

Support: 1.2425, 1.23