Commodities: Tug of War between Tight Supply and Weak DemandThis is the 2nd installment of “The Great Wall Street Repricing” series.
The price of a commodity is determined by the interaction between the demand and supply of its market. This year, such interaction acts like a Tug of War. On the one hand, tight supply pushes commodity price upward; on the other hand, weak demand pulls the price back down. Commodity prices swing wildly as each side battles for supremacy.
News that signals supply disruption sends prices flying. It could be geopolitical tension, bad weather, restrictive government policy, or an oil tanker stuck in the Suez Canal. Meanwhile, high inflation, weak housing market, disappointing retail sales, and Fed rate hikes all raise worry of a global recession and the consequential demand reduction.
Not all commodities are created equal. I have made some interesting observation: Commodities primarily used as a production input hold up much better than those being consumed by end users. To prove my point, let’s review the price data at market close on September 2nd.
In the energy market:
• WTI crude oil ( NYMEX:CL1! ) is settled at $86.4 per barrel, down 11.9% month-to-date (MTD)
• RBOB gasoline ( NYMEX:RB1! ) closes at $2.38 a gallon, down 23.3% MTD
• Oil Supply: There is no elasticity. Crude oil production capacity is capped in any given year
• Demand elasticity: Consumers could adjust their driving habit in response to inflation
American Automobile Association (AAA) reports today that national average retail price of regular gasoline is $3.809, down 9.1% MTD, but diesel, at $5.067 a gallon, is down less than 4% MTD. Why? Diesel is mainly used for highway transportation of goods by trucks. Delivery routine has less flexibility to change comparing to consumer driving behavior.
In the food market:
• Corn ( CBOT:ZC1! ), a main ingredient in livestock and poultry feed, closed at $6.58 per bushel, up 6.7% MTD
• Lean hog ( CME:HE1! ) is settled at $0.919 per pound, down 3.7% MTD
• Corn price is vert sensitive to supply factors such as plant acreage, weather, and yield
• Hog price is more correlated to demand factors, including export of US pork, and consumer seasonal changes of dietary habit
• Pork has substitutes. When it gets expensive, consumers could switch to cheaper meat. People in poorer countries could simply reduce meat consumption
On August 2nd, I expressed my view in a trade idea titled “Short the Hog Margin if You Expect Lower Pork Price”
In the metals market:
• High Grade Copper ( COMEX:HG1! ) closed at $3.408 per pound, down 4.2% MTD
• Silver ( COMEX:SI1! ) is settled at $17.655 per troy ounce, down 12.6% MTD
• Both copper and silver are industrial materials. They declined in response to economic slowdown, but there is a significant difference
• About 50% of silver supply is used in industrial applications, with the other 50% being used as a previous metal or for daily use
• Consumers will buy less silver jewelry in tough times. This explains why silver declined three times as much as copper.
In the credit market:
• 2-Year Treasury yield ( CBOT_MINI:2YY1! ) closed at 3.514%, up from 2.950% last month
• 10-Year Treasury yield ( CBOT_MINI:10Y1! ) settled at 3.272%, up from 2.727% last month
• Both went up in response to Fed’s rate hikes, but there is a difference
• 2-Year Note has a direct relationship with Fed Funds rate. It reflects the cost of money (rate hike) and the supply of money (quantitative tightening)
• The yield of 10-Year Note also reflects money demand in addition to money supply
• In an economic downturn, businesses and consumers will reduce borrowings. The spread between deposit interest and lending rate will be tightened
• This makes sense – with lower loan volume, banks are willing to make less
What about High Interest Rate and High Inflation
In the first installment, we discussed the impact of high rate and high inflation from the perspective of discounted cash flow valuation model.
• High interest rate increases the discount factor, the denominator of the equation
• High inflation increases production cost and reduces sales, which results in smaller free cash flow, the numerator of the same equation
• The combined effect is a lower stock valuation
Aligning with what we discuss today, we may find the inflationary impacts differ depending on whether the commodities are industrial materials or bulk consumer products.
Inflation means higher price. It is generally good for those commodities primarily used as production input, such as natural resources. Energy producers, metal dealers and mining companies have all made record profit this year. However, if persistent inflation eventually leads to a recession, commodity price would fall due to lower demand.
It’s an entirely different story for companies producing bulk consumer products. As we discussed earlier, hog farmers get squeezed by higher feed cost and lower meat price. Jewelers would find customer traffic significantly reduced due to higher prices of gold and silver jewelry.
The impact of higher interest rates is more uniform for most commodities. It increases the borrowing costs on anyone engaged in producing, processing, transporting, and using the commodities. Higher cost results in lower usage, which would depress commodity price.
In addition, a strong dollar raises the price for overseas consumers when they pay with a weaker foreign currency.
I think we have covered a lot today. Let’s take some time to digest and identify market opportunities with these observations.
Financial market is extremely volatile this year. Getting an information edge increases your odds of success in managing risk. I suggest leveraging real-time market data for a better gauge of market situation. TradingView users already have access to delayed data. A Pro user could upgrade to real-time CME market data for only $4 a month, a huge discount at the time of high inflation.
Happy Trading.
Disclaimers
*Trade ideas cited above are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management under the market scenarios being discussed. They shall not be construed as investment recommendations or advice. Nor are they used to promote any specific products, or services.
Nonfarmpayroll
DXY Hits Our Target! What's Next?The US dollar has broken through highs and hit our exact target at 109.86, before retracing slightly. The headline Nonfarm payrolls today was a miss, suggesting weakness in the economy which might effect the rate hike probabilities slightly, but we are still expected to see a 50-75 bps rate hike this month. That being said, the hawkishness of the Fed is likely to be completely priced into the forex market soon, and the dollar may be topping off. If we do see another rally, then 110.20 is the next target. Otherwise, we should see support from the 108's, at 108.50 in particular.
How will Today's Nonfarm Payrolls Release Effect Stocks?The S&P 500 caught a small rally yesterday, but it could be short-lived. After such a strong selloff, we were due for a relief rally at some point. It appears the markets are still pricing in what the Fed will do this month at their FOMC meeting, but a 50-75 bps is the most likely. We tested the exact level we predicted at 3909. Subsequently, we bounced back to the upper 3900's, where we started running into resistance. In particular, 3978 is proving difficult to crack, but if we are able to, then 4009 will be the next major hurdle and first level in the 4000's. If things turn south, expect support at 3909 again, then the next major level is a low at 3825, but we are likely to find some support in between for the time being.
Headline figures from Nonfarm Payroll data for August suggest some weakness with a headline miss and two month downward revision. This may dampen the Fed's hawkish tone slightly, but we are still likely to see the rate hike we mentioned above. Stocks are likely to continue in a slump until September's FOMC.
Bond Market Reacts to Nonfarm and FedBonds fell again, hitting our next target at 115'29. Yields are creeping up as the markets are pricing in the next rate hike, expected to be 50-75 bps . Nonfarm payrolls gave us some insight into economic conditions: unemployment rose to 3.7%, with a headline miss and downward revision. This suggests that the economy is weakening further, and we are in a period of stagflation. Yields subsequently weakened and we are seeing a slight pivot off 1529. If we rally, we could hit 116'20 or even 117'08. If the figures are hotter than expected it should bolster the Fed's hawkish rhetoric and we could break through 115'29, to 115'03.
NonFarmPayroll Prep (EURUSD)NFP analysis for the first Friday of the month! The expectation is for an increase of 295K with last month released at 528K (The previous month's forecast was 250K). And relatively unchanged in terms of the unemployment rate and average hourly earnings . If the data is released better than expected, the USD should strengthen.
The EURUSD has found a wide trading range of 0.99 and 1.009 as price bounces between the two levels. More specifically, Price of the EURUSD has seen volatility around the parity level.
If the DXY strengthens on the release of the news, the EURUSD could trade towards the 0.99 support level again, and might not find further downside.
However, if the DXY does show weakness from a disappointing NFP event, the EURUSD could trade towards and beyond the 1.009 level, with 1.020 a possible target level.
NonFarmPayroll Prep (USDJPY)NFP analysis for the first Friday of the month! The expectation is for an increase of 295K with last month released at 528K (The previous month's forecast was 250K). And relatively unchanged in terms of the unemployment rate and average hourly earnings. If the data is released better than expected, the USD should strengthen.
Is the USDJPY likely to continue climbing higher?
Or is it set up for a strong reversal?
Typically strong US NFP employment data is would result in a strengthening of the DXY and for the USDJPY to climb higher.
The USDJPY could climb towards the 142 resistance area before possibly staging a strong reversal, as the Stochastic look to turn out of the overbought area.
On the reversal, the first target level would be the 139.40 support level.
NonFarmPayroll Prep (NZDUSD)NFP analysis for the first Friday of the month! The expectation is for an increase of 295K with last month released at 528K (The previous month's forecast was 250K). And relatively unchanged in terms of the unemployment rate and average hourly earnings. If the data is released better than expected, the USD should strengthen.
The NZDUSD has a strong descending trend line that applies downward pressure on price. But, the NZDUSD currently trades just above the 0.6060 support level. If the price breaks lower, there is little support until the 0.5930 price level (which was last reached in may 2020).
Consider the possibility that the NZDUSD could find a significant upside move in the event of a surprise/bad data release from the US.
If the price breaks above 0.61 and the diagonal trendline, the NZDUSD could climb towards 0.6158 and even 0.6250.
NonFarmPayroll Prep (AUDUSD)NFP analysis for the first Friday of the month! The expectation is for an increase of 295K with last month released at 528K (The previous month's forecast was 250K). And relatively unchanged in terms of the unemployment rate and average hourly earnings. If the data is released better than expected, the USD should strengthen.
The AUDUSD is currently retracing from the overnight's move lower, with price currently at the 0.68 level.
If the DXY strengthens, look for price to close below the 0.6725 level before a sustained move to the downside, towards 0.6680 support level.
But if the data fails to surprise or the DXY weakens, the AUDUSD could climb higher towards the 0.6843 level. Not idea to try buying the AUDUSD to the upside. Would be better to stay out.
NonFarmPayroll Prep (DXY)NFP analysis for the first Friday of the month! The expectation is for an increase of 295K with last month released at 528K (The previous month's forecast was 250K). And relatively unchanged in terms of the unemployment rate and average hourly earnings.
Even a day before, the DXY shot up from the 109 level to test the 110 price level, opening up the possibility of a priced-in scenario. Typically the currencies sit in a tight consolidation in the leadup to the data release, but this time, the DXY is actually dropping before the news.
The DXY could drop lower towards the 109 level (and bottom of the upward channel) before the news or on the release of the news. If the data is better than expected, the USD should strengthen, pushing the price from 109 to 109.50 and possibly even the 110.50 target level.
If the price breaks below the 109 level and beyond the channel, the DXY could continue lower towards the next support level of 108.20 before a possible bounce.
DXY monthly forecast ahead of NFP At August’s close, the USD can be said to have performed exceedingly well against its trading partners. The DXY climbed 3.2% over the month. Now it heads into a very important Non Farm Payrolls result, and investors will be looking for clues as to the USD’s next move.
The Non Farm Payroll data for August is released on September 2, 2022, and is perhaps more eagerly anticipated than normal. The reasons for this are detailed in Monday's market review Pound and gold head lower before NFP data.
The worst performing USD pair over the past month has been the Pakistani rupee (USD/PKR), which fell by more than 8.0%. But this movement against the USD was far from the norm.
The movements of other currencies include:
GBP/USD, fell by 5.2%
NZD/USD, fell by 2.9%
EUR/USD, fell by 2.1%
AUD/USD, fell by 1.9%
USD/INR, rose by 1.4%
USD/RUB, rose by 1.7%
USD/CAD, rose by 2.1%
USD/CHF, rose by 2.5%
USD/JPY, rose by 5.3%
We can look at the DXY chart on the monthly timeframe to try to ascertain whether the USD can sustain this upside momentum.
Thus far, technical analysis is maybe suggesting that the US dollar still has plenty of space to move toward the upside.
The monthly candle’s 107.500 resistance area, which is now broken, opens traders to scope out higher levels of resistance including 110.00 and 116.500. The former of which the Dollar index is currently butting up against.
Further afield, traders may want to keep the 2-decade high of 120.000 in the back of their mind. Such a lofty prediction is seemingly backed-up by an upcoming US Federal Reserve interest rate decision.
On the other hand, traders should be wary as well. The price could also create a monthly pullback as the Williams %R indicator is currently planted in the extreme upper range above 20%, which indicates that the price might be in overbought territory.
Cooled private employment readings lower nonfarm estimatesEUR/USD 🔼
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Yesterday, the ADP Nonfarm Employment change tracking the private sector showed 132,000 workers joined the labor market, significantly lower than the expected 300,000. The lackluster result raised doubts about the nonfarm payrolls provided by the US Bureau of Labor Statistics, which also has a 300,000 estimate for the month of August.
If the official figures also disappoint, the Federal Reserve is more likely to opt for a 50 bps rate hike rather than a 75 bps one. However, USD/CAD still managed to rise to 1.3127, currently trading at 1.3161, Canada's GDP growth was at 0.1% as predicted. USD/JPY first closed at 138.96, then reached a record high not seen after 1998, jumping to 139.53.
Regarding other major currencies, EUR/USD briefly went below the parity level again, but soon recovered to 1.0057. Eurozone’s headline inflation rate slightly surpassed original projections at 9.1%, and investors expect tonight’s German retail sales to record fewer losses. GBP/USD slid from 1.1692 to 1.1622, while the Aussie declined to 0.6839 against the greenback.
Gold futures declined to $1,726.2 an ounce. Yet another pipeline maintenance from Russia to Europe tightened the energy supply on the continent, and despite falling Crude Oil Inventories, WTI oil futures dropped and stabilized at $89.00 a barrel, before closing at 89.55.
More information on Mitrade website
GBPUSD, further weakness expected on Sterling against DollarFed speech last Friday made USD strengthen and DXY technically looks upwards till 110 zones which let other Major pairs will face effects, that too GBPUSD looks bearish till 1.15 zone, Expect a bounce back from the low there, Cant neglect the fact of NFP reports on Sep 2, Friday
A Tale of Two Americas CME:LE1!
The U.S. Bureau of Labor Statistics (BLS) released July non-farm payrolls on August 5th and July Consumer Price Index (CPI) on August 10th. Both reports beat market expectations. About 528,000 new jobs were created in July, well above June level. Annualized Inflation was lowered to 8.5% from the record 9.1% in June.
While strong jobs data and taming inflation show the resilience of US economy, worrying signs are emerging. There are strikingly different faces of America: 1) People with jobs and those without; 2) Financially sound public companies and struggling small businesses; 3) Commodity prices that are under control, and those still flying high.
July Non-farm Payrolls
According to the Census Bureau, US population was 332 million in January 2022. Civilian Labor Force data reported by the BLS was 164 million in July, 49% of total population. It appears that the non-farm report shows us only half of the country.
America: People with Jobs
Total number of non-farm employees was 158 million in July. Of the half-million new jobs created, Leisure & Hospitality contributed to 96,000 (18%), while retail, wholesale, transportation, and warehousing together accounted for 42,000 (8%). Service-sector jobs tend to be low-pay, part-time and/or without benefits.
Health care and Government created 70,000 (13%) and 57,000 (11%) new jobs, respectively. Since 2020, the Federal government has spent trillions to fight the pandemic and rescue the economy. These jobs were funded by budget, not by growing demand of a free market.
Although American consumers continue to support the economy, low-income earners are struggling with rising costs of housing, food, transportation, and household necessity.
America: People without Jobs
Officially, the U.S. had 5.7 million unemployed persons in July. It is very misleading.
According to the July report, “The number of persons not in the labor force who currently want a job was 5.9 million in July. These individuals were not counted as unemployed because they were not actively looking for work during the 4 weeks preceding the survey or were unavailable to take a job.” If we take both into consideration, the total number of unemployed people would be 11.6 million, with real unemployment rate at 6.8%.
Additionally, more than half of the population is not included in the labor force, who count children, housewives, retirees, military members, adult students, and US citizens living abroad among them. People without jobs still have living expenses. They may be supported by working family members, government programs, or charities. They are the most vulnerable when the economy turns south.
Retirees with fixed income are also being hit hard. With rising price, they sometimes must make the hard choice between food, medicine, and filling up the gas tank.
Now, let’s turn our focus to American businesses.
American Business: Public Companies
From the pandemic triggered selloff in March 2020, the S&P 500 rebounded and doubled its value to 4800 last December. In 2022, the index was down 24% in the first six months. It has since recovered half the losses, down just 11% year-to-date as of August 10th.
Based on data compiled by Liberated Stock Trader, these 500 publicly traded companies employed 28 million people worldwide. Walmart (WMT) is the biggest employer with a 2.3 million workforce. Amazon (AMZN) came in 2nd, with 1.3 million employees. On average, S&P component companies have 56,000 employees.
With the ability to produce and distribute their products around the world, Big Businesses could withstand the impact of higher cost or adverse policy better than most companies.
According to WSJ data, as of August 5th, the trailing 12-month Price/Earnings Ratio (P/E) is 22.6 for S&P 500. Forward P/E is 18.2. Market expects S&P component companies to have lower earnings, but the impact of pending recession is not very significant.
American Business: Private Companies
Let’s start off by saying that I do not have comprehensive research on private businesses. Since most readers could only invest in the secondary market, we could use the Small-Cap Russell 2000 index as a proxy to mainstream American businesses.
Russell has a YTD return of -12%, about 1% below the S&P. In the past five years, Russell underperformed S&P by 28%. Small-Cap stock performance is especially weak at time of market turmoil.
A big difference is in the P/E ratio. Russell has a trailing P/E of 68.9, but the forward P/E sharply drops to 22.6. In good times, Small-Cap stock price have been inflated a lot more than the Blue-Chip. I expect their price to deflate faster in the pending recession.
July CPI Data
July CPI is unchanged from June month over month (M/M), and up 8.5% year over year (Y/Y). Core CPI, which excludes food and energy, is up 0.3% M/M and +5.9% Y/Y. Diving in the data by commodity category shows a different picture.
Food: Up 1.1% M/M in July from 1.0% in June. Annualized food inflation is now 10.9%.
Energy: Down 4.6% M/M, of which, gasoline, -4.6%; diesel, -4.7%; natural gas, -3.6%. Annualized energy inflation remains uncomfortably high at +33%. Gasoline price is 45% higher Y/Y after 50 days of consecutive price cuts.
Commodities (excluding food and energy): Up 0.2% M/M and 7.0% Y/Y. CPI data M/M and Y/Y for selected products is: New cars, +0.6% and +10.4%; Used cars, -0.4% and +6.6%; Clothing, -0.1% and 5.1%; Pharmaceuticals, +0.6% and +3.7%.
Services (excluding energy): Up 0.4% M/M and 5.5% Y/Y. CPI data M/M and Y/Y for selected service categories is: Housing, +0.5% and +5.7%; Transportation, -0.5% and +9.2%; Medical, +0.4% and +5.1%.
Overall, inflation is lower in July only because the sharp decline in energy prices offset the price gains in food, housing, new cars and medicine . Investors' thrill in the stock market may be gone when they go the supermarkets after work.
There are signs that consumers are downgrading their food purchases in the face of runaway inflation.
Firstly, people tend to give up dining out in favor of cooking at home to save money. In July, food at home inflation was +1.3% M/M and +13% Y/Y. Price inflation for food consumed away from home increased at a slower pace, up 0.7% M/M and 7.6% Y/Y. There is a 5.5% spread, which impacts food spending at these two segments.
Secondly, meat purchases show an apparent shift toward less expensive options. In July, beef price inflated 3.4% Y/Y, while pork was up 7.6% and chicken up 17.6%. Within each meat category, lower cost products also show higher inflation, indicating more demand. For example, ground beef was up 9.7% Y/Y, while steak price was down 1.5%!
Bearish Trade Ideas
With the headwind facing American economy, I think that a recession is inevitable. Based on the above analysis, I recommend shorting the Russell 2000. A 60+ P/E is too rich a valuation. The index could crash harder than S&P during an economic downturn.
We could consider shorting the CME Micro E-Mini Russell 2000 December contract (M2KZ2) . Each contract is $5 x Index. At current quote of 1,974, each contract has a notional value of $9,870. CME requires initial margin of $550.
Another idea is on beef prices. American consumer generally eats more beef while dining out. With the shift to cooking at home and buying cheaper meat, I expect beef prices to fall faster than pork price during a recession.
We could short the CME Live Cattle December contract (LEZ2) . Each contract is 40,000 pounds of cattle. At current quote of 150.575, each contract has a notional value of $60,230. CME requires initial margin of $1,600.
The futures market is extremely volatile this year. Getting an information edge increases your odd of success. I suggest my readers to subscribe to CME market data. TradingView users already have access to delayed data. A Pro user could upgrade to real-time CME market data for only $4 a month, a huge discount at the time of high inflation.
Happy Trading.
Disclaimers
*Trade ideas cited above are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management under the market scenarios being discussed. They shall not be construed as investment recommendations or advice. Nor are they used to promote any specific products, or services.
Strong nonfarm payrolls send greenback flyingEUR/USD 🔽
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US nonfarm payrolls in July added 528,000 jobs, shattering the original estimate of 290,000 and reaching a five-month high. The strong employment readings seemingly dispelled recession fears, and would likely extend the string of aggressive rate hikes from the Federal Reserve.
The surprise boost for the greenback sent its peers to a sharp decline, GBP/USD recovered from 1.2025 to a closing price of 1.2071. EUR/USD closed lower at 1.0181, despite optimistic industrial production data from Germany and France. Mixed Chinese economic data didn’t stop the Aussie from falling to 0.6909 against the US dollar.
Meanwhile, the USD/JPY pair gained over 210 pips to 134.97 as the notable performer, and USD/CAD rose to a high of 1.2977 then stabilized and closed at 1.293. Gold futures were also spooked to $1,781, then rebounded to 1,791.2 an ounce.
WTI oil futures experienced minor fluctuations, mostly traded flat at $89.01 a barrel.
More information on Mitrade website.
What Today's Employment Data Means for Stocks and the FedNon Farm Payrolls introduced some volatility in stocks. The numbers came in hot, with a headline beat and unemployment at 3.5% . The S&P 500 had already edged higher, reaching our target of 4178, and establishing value between 4144 and 4178. The NFP data release introduced some volatility, with a small selloff extending past 4122 into the vacuum zone down to 4068. It appears the figures were priced in already, and stocks may be correcting because of that. Also, the strong numbers give the Fed more justification to hike rates in September. If stocks fall further watch for support at 4068, but be mindful of the vacuum zone below to 4009.
Non-farm payrolls = Volatility ahead! (SP500)US500
Intraday
We look to Buy at 4086 (stop at 4060)
Preferred trade is to buy on dips. There is scope for mild selling at the open but losses should be limited. Bespoke support is located at 4090. Support could prove difficult to breakdown. Further upside is expected although we prefer to set longs at our bespoke support levels at 4090, resulting in improved risk/reward.
Our profit targets will be 4163 and 4320
Resistance: 4167 / 4500 / 4800
Support: 4090 / 3800 / 3400
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Euro teasingly flirts with parityFor those following the euro's close encounters with parity, the currency played a game of tease earlier today. In the European session, EUR/USD dropped to parity with the US dollar, a line of psychological importance. However, the euro would not budge any lower, and is currently at 1.0068 in the North American session, up 0.28% today. I would not be surprised if EUR/USD does break below parity in the coming days, for the first time in some twenty years.
Germany's ZEW Economic Sentiment has been stuck in negative territory for months, indicative of strong pessimism about the economic outlook. The July release earlier today fell to -53.8, down sharply from -28.0 in June and missing the consensus of -38.3. The eurozone economy is grappling with soaring inflation and the war in Ukraine shows every indication of dragging on. The Nordstream 1 pipeline, the main channel for Russian oil to Germany, closed for maintenance on Monday and there are fears that Moscow could decide to keep the pipeline closed. This would prove a nightmarish scenario for Germany, with winter only a few months away.
The US dollar stormed out of the gates on Monday, buoyed by a stronger than expected non-farm payroll report on Friday. The economy produced 372 thousand jobs in June, well above the estimate of 268 thousand and close to the May release of 384 thousand (revised from 390 thousand). The unemployment rate remained at 3.9% and wages rose by 0.3%, which means that the Fed has a clear path to move ahead with a second straight 75bp hike at the July meeting. The Fed is not taking any prisoners in its battle against inflation and is clearly willing to deliver 75bp salvos until inflation eases. It wasn't long ago that a 50bp hike was considered a massive move; now such an increase would barely raise an eyebrow.
The US releases inflation on Wednesday, a key release that could move the US dollar. Headline CPI is expected to rise from 8.6% to 8.8%, and if inflation does move higher, it would likely cement a 75bp move from the Fed and send the dollar higher. Conversely, a surprise drop in inflation would raise hopes that inflation has peaked and the Fed might resort to a 50bp increase, sending the dollar lower.
EUR/USD tested support at 1.0018 in the European session. Below, there is support at 0.9889
There is resistance at 1.0124 and 1.0242
Positive US-Nonfarm Payrolls may bring more rate hikesEUR/USD 🔼
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Amidst political shockwaves from Japan and the U.K., the Nonfarm Payrolls readings for June have increased by 372,000, significantly outperforming the market forecast of 268,000. Since this result does not align with market fears for a recession, the Federal Reserve will likely implement further mega rate hikes to combat inflation.
Meanwhile, Elon Musk opted to terminate the Twitter deal, as he claimed the lack of information provided by Twitter itself hindered his goal of removing all spam and fake accounts on the platform. As a result, the stock price (TWTR) decreased by 5.10%, losing over two U.S. dollars over the weekend.
EUR/USD closed at 1.0183, after recovering from a low of 1.0100, and the German ZEW Economic Sentiment index will be available tomorrow. As the British Parliament awaited the next political leader, GBP/USD recovered from 1.1933, then closed at 1.2027 with minor gains. AUD/USD had a choppy trading session to 0.6856, and just declined to 0.6828.
Gold futures markets were mostly quiet, and little change was recorded at $1,741 an ounce. Although U.S. oil futures settled at 104.79, they were climbing slowly. The U.S. 10-year Treasury yield bonds advanced a further 8.8bps to 3.082%.
More information on Mitrade website.
Asian Entry US100Noticed a m5 BoS prior to market close. Pending order was placed at the open of asian session.
GOLD NFP MOVEMENT AND FORECASTAs based on the recent Non-Farm Payroll data which came 678k which is 211K more then last month's data and around 271k more then forecast which make the economic condition of US strong as a result we can possibly see bullish trend in US dominated currency pairs although on the other hand the situation between Ukraine and Russian is getting worse which is giving a direct fuel to the prices of commodities like GOLD which can be seen always inverse from USD while these fundamental movements stretching out the market we can catch sight of consolidating movements with momentary spike in GOLD prices. As the technical Indicating strong Buy for GOLD however Fundamentals are opposing the same while following the nearest resistance of around 1949 and support of 1943.
DXY still bullish above 94.60TGIF all,
I wanted to share my opinions to the chart of DXY .
I see DXY still successfully produces lower highs while finding supports on 9 months old (blue) trendline.
In my opinion, DXY is still bullish above 94.60.
We observed a correction lately on DXY from the 97.5 levels.
Demand to dollar increased due to the expected rate hikes of Fed but the price already discounted the hike probabilities.
Now we have to watch carefully of the upcoming NFP data while observing the Omicron cases.
Be careful!
If the layoffs are high, there may be a jump on average wages .
Have a good weekend!