Market Focus

US stocks ended mixed on Friday, as the release of an unexpectedly strong jobs report alleviated recession fears and cleared the path for the Federal Reserve to raise interest rates more hawkishly. The report validated the Fed’s view of a resilient economy that can withstand additional interest rate hikes and also forced investors to recalibrate their expectations of the next interest rate hike. A 75 bps hike is the more likely scenario at the September meeting.  Some investors have resumed shunning global stocks in favor of bonds while corporate earnings, combined with thin liquidity that is common in the summer, took the stock market on a ride this week, even as many firms beat earnings forecasts and proved they could handle high inflation and a gloomy economic outlook.

The benchmarks, S&P 500 slid 0.16% on a daily basis after falling as much as 1.1% during the trading session. Six out of eleven sectors stayed in negative territory, with Consumer Discretionary and Communication Service performing the worst among all groups, falling 1.66% and 0.88% respectively while the Energy sector rose 2.04% on Friday.  At the same time, the Dow Jones Industrial Average rose 0.2%, Nasdaq 100 dropped 0.8%, and the MSCI world index rose 0.3%.

Main Pairs Movement

The US dollar rallied on Friday, after a surprisingly strong jobs and US payrolls report suggested the Federal Reserve may take a more aggressive approach to its interest rate hike policy. The DXY surged 0.84% on a daily basis, climbing to a daily high level above 106.9 after a report showed nonfarm payrolls added 528k jobs last month, which is the largest gain since February.

GBP/USD  dropped 0.72% for the day, as the unexpectedly strong NFP report led to advances in the greenback across the board, weighing heavily on its peers. It’s worth noting that the Bank of England raised rates by the most in 27 years to fight runaway inflation in a dovish 50bp hike to 1.75%, and has said that a long recession was coming, highlighting the bleak outlook for the UK economy and the pound. Meanwhile, EUR/USD touched a daily low of nearly 1.014, and the pair declined with a 0.61% loss on Friday.

Gold fell 0.88% with a strong US dollar, and XAUUSD touched a daily low of $1765 during the US training session. Investors need to keep eyes out for the consumer and producer index next week.

Technical Analysis

EURUSD (4-Hour Chart)

The EUR/USD pair tumbled on Friday, witnessing heavy selling and dropping to a daily low below the 1.015 mark after the release of US Nonfarm Payrolls for July. The pair is now trading at 1.01580, posting a 0.86% loss on a daily basis. EUR/USD stays in the negative territory amid renewed strength observed in the US dollar, as the upbeat US jobs report provided a strong boost to the safe-haven greenback and undermined the euro. The US Nonfarm Payrolls rose by 528K in July, which came in better than the expectations of 250K and showed the growth momentum in the US jobs market. On top of that, the higher-than-expected NFP result also reignited the expectations of more aggressive policy tightening by the Fed in the next months. For the Euro, the increasing speculation of a potential recession in the Eurozone continued to exert bearish pressure on the shared currency.

On the technical side, the RSI indicator is at  42 as of writing, suggesting that downside is more favored as the RSI stays below the midline. As for the Bollinger Bands, the price witnessed fresh selling and crossed below the moving average, therefore the bearish momentum should persist. In conclusion, we think the market will be bearish as the pair is heading to test the 1.0150 support line. A break below that level could lead the pair toward the 1.011 mark.

Resistance:  1.0289, 1.0438, 1.0486

Support: 1.0150, 1.0111, 0.9991

GBPUSD (4-Hour Chart)

The GBP/USD pair slipped on Friday, extending its previous slide and dropped sharply to a two-week low below 1.202 level amid stronger US dollar across the board. At the time of writing, the cable stays in negative territory with a 0.83% loss for the day. The upbeat US Nonfarm Payrolls that was released earlier in the European session has revived bets for a larger interest rate hike at the September FOMC policy meeting. There is now a 70% probability of a 75 basis points hike at the next policy meeting amid more hawkish comments by several Fed officials this week. For the British pound, the gloomy outlook for the UK economy and the comments from BoE that a long recession is coming in the fourth quarter of this year both acted as a headwind for the cable.

Meanwhile, the RSI is at 37, suggesting that the pair is facing bearish pressure but the RSI has rebounded toward the midline. For the Bollinger Bands, the price rebounded after falling out of the lower band, therefore some upside traction can be expected. In conclusion, we think the market will be slightly bullish as long as the 1.2007 support line holds. The rising RSI also reflects bull signals. On the downside, sellers could take action if 1.2007 support fails.

Resistance: 1.2178, 1.2277, 1.2317

Support: 1.2007, 1.1933, 1.1830

XAUUSD (4-Hour Chart)

As the US dollar continued to find demand amid the stronger-than-expected US employment report on Friday, XAU/USD came under heavy selling pressure and slumped to a daily low below $1,767 level at the start of the US trading session. XAU/USD is trading at 1777.82 at the time of writing, losing 0.73% on a daily basis. The renewed strength witnessed in the US dollar continued to undermine the dollar-denominated gold, as investors lifted their bets for a larger Fed rate hike move at the September meeting. However, the growing fears of recession and China-Taiwan tensions should limit the downside for the precious metal after the news showed that China conducted missile strikes in the Taiwan Strait.

On the technical side, the RSI is at 50, suggesting the pair’s indecisiveness in the near term as the RSI indicator stays near. For the Bollinger Bands, the price regained some upside traction and rose toward the moving average, therefore a continuation of the upside trend could be expected. In conclusion, we think the market will be slightly bullish as long as the 1771.12 support line holds. A break below that level might favor the bear and open the door for additional losses..

Resistance: 1785, 1794, 1811

Support: 1771, 1756, 1738