US Jobless Claims higher, Market waits for NFP

October 7, 2022

U.S. equities traded lower throughout yesterday’s trading. The Dow Jones Industrial Average slipped 1.15% to close at 29926.94. The S&P 500 dropped 1.02% to close at 3744.52. The tech-heavy Nasdaq Composite edged 0.68% lower to close at 11073.31.

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U.S. initial jobless claims came in at 219K, above market expectations of 190K. The upside surprise of jobless claims sparked a brief rally among equities; however, market participants will now turn their focus on today’s nonfarm payrolls figure and the unemployment rate to better gauge the health of private sector hiring.

In contrast to traditional thinking, worse-than-expected payroll gains and higher-than-expected unemployment rates could be a good signal for equities. A slowdown in private sector hiring could provide proof of the Fed’s tightening efficiency.

The benchmark U.S. 10-year treasury yield rose on Thursday and was last seen trading at 3.821%.

Other key factors that market participants should be aware of are the average hourly earnings figures, which are estimated to increase by 0.3% month over month and 5.1% over the year. A lower figure could indicate the Fed’s tightening showing its effect; conversely, an upside surprise could point to further tightening on the horizon. Recent remarks from Fed officials have reaffirmed the Fed’s stance on its determination on bringing inflation down.

Main Pairs Movement

The Dollar index rose 0.47% throughout yesterday’s trading. The U.S. Greenback extended gains from the 5^th as U.S. treasury yields recovered above 3.8%. Market participants will now turn their focus to today’s nonfarm payrolls and unemployment rate figures to gauge the Fed’s next move.

EURUSD dropped 0.91% throughout yesterday’s trading. Recent hawkish comments from Fed officials have added selling pressure on the Euro-Dollar pair. ECB monetary policy meeting minutes indicated possible tightening by the ECB as members believe inflation to still be rampant in Europe.

Cable retreated 1.45% throughout yesterday’s trading. U.K. PMI figures came in at 52.3, above the market consensus of 49.2.

XAUUSD dropped 0.22% throughout yesterday’s trading. The return of strength for the Dollar acted as a headwind for the non-yielding metal.

Technical Analysis

EURUSD (4-Hour Chart)

The EUR/USD pair dropped further on Thursday, preserving its downside momentum and declined to fresh daily lows below the 0.9830 level amid a worsening market mood. The pair is now trading at 0.9806, posting a 0.75% loss daily. EUR/USD stays in the negative territory amid a stronger US dollar across the board, as the downbeat US job data and hawkish comments from Fed’s Kashkari on the policy outlook both provided support to the safe-haven greenback. The US Weekly Initial Jobless Claims rise to 219K in the week ending October 1, which came in worse than the market expectation of 200K and exerted bearish pressure on investors’ mood. For the Euro, the downbeat European data continued to weigh on the shared currency as the German Factory Orders declined by 2.4% MoM in August.

For the technical aspect, RSI indicator 43 as of writing, suggests that the downside is more favoured as the RSI declined sharply below the mid-line. As for the Bollinger Bands, the price preserved its downside traction and dropped below the moving average, therefore a continuation of bearish momentum can be expected. In conclusion, we think the market will be bearish as the pair is heading to test the 0.9765 support. A break below that support might open the door for additional losses.

Resistance:  0.9921, 0.9986, 1.0035

Support: 0.9765, 0.9664, 0.9551

GBPUSD (4-Hour Chart)

The GBPUSD plunged on Thursday, two consecutive day losses erased the gains since October. Early Thursday, the Minnesota Fed President Neil Kashkari crossed newswires. He said that there is still a long way from pausing rates, which weigh on the cables. Data-wise, the US Department of Labor reported that unemployment claims increased, a positive sign for the Federal Reserve. Initial Jobless Claims for the week ending on October 1 rose by 219K, higher than the 203K estimated by analysts. The four-week moving average, which smooths volatile week-to-week results, was almost unchanged. According to a survey from the Bank of England on Thursday, business inflation expectations rose to 9.5% in September, and 8.4% in August. In general, even though BOE is expected to keep rates higher, there might be further weakness in the pound, with the UK still seeing falling into recession and CPI inflation expected to peak lower than previously, indicating probably a more dovish size on the hiking rate than Fed.

From the technical perspective, the RSI indicator below 45, showing the downside pressure would persist. As for Bollinger Band, the pricing was breaking through the lower band as of writing, implying that there might be several continuous drops in the following days and tested the lowest level since October around 1.1069.

Resistance: 1.1379, 1.1507, 1.1714

Support: 1.1069, 1.0797, 1.0632

XAUUSD (4-Hour Chart)

The XAUUSD slightly slip to $1711 as of writing, attracting some intraday selling at a higher level amid a modest USD strength. Gold struggles to gain any meaningful traction on Thursday and seesaws between tepid gains/minor losses through the early US session. The US dollar edges higher for the second straight day and looks to build on the overnight bounce from a two-week low, in turn, acts as a headwind for the dollar-denominated gold. The recent hawkish remarks by several Fed officials reinforced market expectations that another supersized 75 bps Fed rate hike move in November, which remains supportive of elevated US Treasury bond yields and continues to underpin the greenback. Investors need to keep eye on the NFP report released on Friday, which will play a critical role in influencing the near-term USD price. Meantime,  the US bond yields and speeches by influential FOMC members will drive the USD demand. The broader market risk sentiment could provide some impetus to the yellow metal.

From the technical perspective,  the RSI indicator below 60, implying a downside momentum would continue, testing the $1700, a psychological level and weekly low.  As for Bollinger Bands, the price is a breakthrough in the 20-period moving average, a signal telling us that bearish traction could persist for a while.

Resistance:  1726, 1765, 1800

Support: 1614, 1644, 1665, 1700

Economic Data