Worse than expected jobless claims data leads to a weaker US dollar
It’s the day after the FOMC and everyone is left wondering whether the Fed will taper? The wording in the press release is ambiguous as is always the case, and Fed Chair Powell sounded more resolute that tapering was happening this year. The White House budget office is prepping for a shutdown as lawmakers on Capitol Hill struggle to come to an agreement.
An unexpected increase of initial jobless claims in the United States for two weeks in a row now is going against the market’s expectations. The previous week was even revised higher adding insult to injury to those expecting the labour force to come back now that the kids are in school. Today’s 351k is above the 4-week moving average which comes in at 335,750. Last night in Fed Chair Powell’s FOMC press conference he said that a reasonably good jobs number at the start of October would be sufficient for him to recommend the FOMC starts tapering. In my opinion, if this trend continues higher in the IJC it could throw a spanner in the taper wheels. Other data from the US which came in under expectations today was the US Markit Flash PMI for Manufacturing, Services, and the Composite. All three metrics slid slightly.
The constituents within the S&P500 all did reasonably well today with very few trading below their opening price at the UK close.
With individual stocks coming in green this has obviously resulted in the price action trading higher today. One thing I have noticed is the S&P500 likes to move in 150-point ranges, so if the move has travelled that far in a day, week, or month, it may be advisable to be a bit more defensive. The next setup that I am looking for is whether the price action stalls at these levels in the balance zone. If this area acts as resistance and we have some news out of China that Evergrande has missed bond payments, the markets could be in for a rough rise lower. Especially when we take into consideration the direction of travel for the Initial Jobless Claims.
The sentiment indicator on the ActivTrader platform is looking bullish and as this figure rises to an extreme, this could be the signal the market has topped out.
The US dollar index appears to have a broken market structure, so I am now looking for a test lower to the rising trend line. There are massive EURUSD options expiries today so that may have a lot to do with today’s US dollar action. No clear direction in the way the US debt ceiling, funding, and infrastructure bills are heading will start to spook the holders of greenbacks too.
The softer US dollar and a slightly more hawkish Bank of England have resulted in the pound rising into the first level of resistance that I am looking at for a possible reversal. 1.3800is still a target if the daily swing low we’re currently testing doesn’t cap price.