Markets were good for the risk-on-sensitive assets with equities trading at higher levels. The euro is capitalising on rising inflation expectations combines with a weakening US dollar. The focus turns to the NFP and jobs data tomorrow but whether it is enough to move the needle at the Fed is doubtful. In which case these trends could continue for longer.
The first thing I would like to mention is the EURCHF as I have been commenting on this pair for the last few days. Today we see the Swissy is relatively weaker against all bar the dollar and yen. The commodity pairs are particularly bullish, and the risk-on nature of the markets is great for equities as well.
The daily EURCHF price is now testing the 200 ema and a previous market structure pivot, which has been supported and resistant many times. Currently, this is acting as resistance and with the confluence of the daily-200 ema, it may be tricky for the price to rise much further at this pace. However, a break above and then a re-test for support would be another fantastic long opportunity. The European PPI data is pushing markets to test the ECB’s resolve as there is a divide between the monetary policy council as to whether they should tighten their PEPP or for 2022 to bring about a new, large scale, asset purchase facility for PEPP to roll into. The ECB has so far kept its bond-buying levels unchanged along with its interest rates policy. With inflationary pressures rising the ECB are parroting the FOMC and calling the rises in inflation “Transitory”. As bond yields start to creep up, the ECB may have to act sooner than they were originally planning.
One of the bigger catalysts for the move into risk assets has been the weekly Initial Jobless Claims data from the USA. There is a trend to the downside since the recent peak in July and for the US labor force participation rate to pick up, we really need to see fewer people looking for unemployment insurance each week. Tomorrow is the turn of NFP, and the Fed will be weighing up tomorrow’s data along with things like IJC, ADP, participation rate to work out if the labor market could withstand a monetary policy tightening or not. Currently, I personally think they will want to see a few more NFP’s and they will want to see nearly a million jobs added each month.
The USDJPY and the benchmark 10-year Treasury note yield had been rising and falling in a similar fashion. Currently, there is a divergence, so for this trend to continue long-term one of them is currently wrong. Either the USDJPY comes down to the falling US10Y or vice versa. 3rd option is, the similarities whether they be correlated or not, dislocate completely.
Something that is working out for the EURJPY longs is to buy a breakout-retest-continuation (BRC) trade from support which had acted as previous resistance.
The US dollar index has continued to push lower towards the 200 ema dropping -0.25% today and around -0.85% since Fed Chair gave his Jackson Hole symposium speech. The US goods and services deficit declined by 4.3% in July compared to the previous month with a monetary value of -$70.1 billion. Market expectations had been for -$71.0B. US factory orders month-on-month for July came in above expectations with an increase of 0.4% but that is down from 1.5% from June.
The S&P500 made a new all-time high and continues to push for a green close mainly on the back of the good data today from the US but also as a continuation of this mega-trend that could gather pace with news that booster jabs vastly increasing protection.