The first week of the month is always a strange affair as we wait for US jobs data on Friday. For 4 days the US dollar basically did nothing and then bam, Friday hits and it makes a massive range extension higher. Is everyone that wants to be involved actually in a trade? Probably not. Will next week offer an entry to get in? Definitely. Is the US dollar going higher for longer? I think so, but I will trade what I see next week as the move today didn’t offer me an entry as it was too violent in its initial stages.
Market Wrap
The news came in and it was very good news for the US economy. The Non-Farm Payrolls for July were bigger than expected but did not blow out numbers. Over 1.6mln would have been astounding, 943k is good.
The good part is that the previous month got revised higher from 850k to 938k, making it 2 months on the trot for 900k+. The US Bureau of Labor Statistics report said
“With these revisions, employment in May and June combined is 119,000 higher than previously reported. (Monthly revisions result from additional reports received from businesses and government agencies since the last published estimates and from the recalculation of seasonal factors.”
Unemployment was down from the previous month and below expectations, coming in at 5.4%. Average earnings were at the highest guesstimate and above the consensus figure at 4.0%. Holistically almost a perfect set of data points for making the US dollar stronger.
Permanent job losses declined 257,000 month-over-month to 2.9 million, as the labor force participation rate was little changed at 61.7%.
The US dollar index is 0.60% today and 0.80% higher for the week and is looking very strong following from the daily bullish engulfing candle from Wednesday, and today's range extension higher. If we can get through the balance area around $92.80 that only leaves the recent swing high and March swing high as the next obvious targets.
Prices of oil had increased by over 1% on Friday as oversupply fears were set aside amid rising tensions in the Middle East. Following on from the jobs data and subsequent rise in the US dollar, plus the ongoing delta variant's impact on the economies of the major oil consumers, the WTI contract dropped 1.11%.
The ActivTrades sentiment indicator has moved into the very extreme readings of 83% of the traders being bullish as the price action on the daily chart is looking more bearish, along with the fundamentals around COVID-19. If yesterday’s low is taken out the next obvious target would be the $65 swing low.
Japan continues to post new record daily numbers of coronavirus cases with 15,645 new cases reported over the past 24 hours. For 3 days now the numbers have been rising and although it’s on a smaller scale, Australian territories are preparing for exponential increases too if people refuse to get vaccinated. In the USA President Biden stated, “Virtually off” deaths caused by the Delta variant “were preventable if people had gotten vaccinated”.
The USDJPY has now broken higher out of the descending channel and should test the upper bounds of the previous resistance levels formed in 2021. The momentum is still to the upside and a close this high up in the range could get the daily 20 ema back above the daily 50 ema. Which would encourage more long traders to jump in.
The S&P500 and Dow Jones Industrial Average both reacted to the US jobs data very positively making new all-time highs. Whereas the Nasdaq pulled back to previous a previous resistance/support pivot. 15,050 on the UsaTec chart has been traded through many times but as a reference point it was where the buyers stepped in today, so we’ll have to leave it on the chart as significant support for the future. Following the London close, the Nasdaq dipped back into the range but is increasingly looking like it would also like to trade higher having taken out the previous hour’s highs at the time of writing. The drop in the tech-heavy index is down to traders cycling out of the “Stay at home” stocks in favor of the industrials and financials as there is more chance of the Fed having to tighten even moderately, sooner, rather than later.
In my video analysis today, I described how I was expecting the US dollar to gain on good jobs data and that the levels to reach for, would be towards the 1.1750. Thankfully that part of the analysis was correct, so I made a good call for the target today. As you can see by the analysis left on the chart, I was hoping for some sort of test higher of old support to become resistant, but it never came. The EURUSD paused and then dropped like a stone.
If today marks the directional move for the rest of the month until Jackson Hole, I think we get back down to the weekly double bottom by early September. If this is the case, there should be some good trades to be found over the next couple of weeks. The worry is that a lot of traders are now caught in the short trade and then hold over the weekend. They have already started to decrease their long positions on the ActivTrader sentiment indicator as they got stopped out or puked. If the retail sentiment now flips short, this could be a climactic sell-off and next week is a reversal. Always best to consider all possibilities, and make sure to not go into the weekend with too much, if any, risk.
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