Today is the most important day for investors and traders, as it is today when they will get to know more about the health of the US labour market. The bar is set really high and there are great chances of disappointment. The forecast for the US NFP is 197K while the previous reading was at 49K.
Ahead of this data, we see a decent currency strength expressed in the dollar index—the index has been on the upward trajectory throughout this week. This is despite the fact that the Fed has assured the market that the interest rates will not be moving anytime soon.
However, traders believe that the Fed will be forced to change their monetary policy’s sailing path. The dovish monetary policy has ignited an economic recovery in the US. In addition to this, stimulus relief packages have also aided the US economic recovery process. There is also a strong potential of another US stimulus package hitting the US economy this month, and the hope is that more Americans will return to work.
Despite all of this, traders aren’t expecting a stellar US NFP reading—never mind the forecast. This is because the economic data that we have received this week has failed to lay a strong case for a robust US Non-Farm Payroll number.
For instance, the ADP report, which came out on Wednesday, was a lot softer than the market expectation. The data came in at 117K, against the forecast of 195K. Similarly, University of Michigan Consumer Sentiment Index also fell. There was also the echo of weak economic data in the ISM Services.
However, some traders are not fully losing their hopes, and they believe that there are certain signs that are indicating that we may get a strong reading today. If we do get a stellar reading, it may push the dollar index even higher.
The economic reading that is giving them confidence is the Continuing Claims data. This is not only more frequent data, but it also provides an early picture of the US labour market.
What we have learned so far from the Continuing Claims data is that the employment situation has started to improve as Americans are returning to work. Of course, a lot of this is mainly due to the fact we have seen a lot of success with the coronavirus vaccine.
So, one major question that traders are asking themselves in the light of this data is how will the Fed adjust their policy?
Jerome Powell, the Fed Chairman, said it very clearly that the Fed is in no rush in increasing the interest rate, and the surge in inflation is only going to be temporary. He also indicated that the Fed has the ability to adopt according to the market condition. This means we could see operation twist—where the Fed plays with the short-term bond yield curve to stabilise the bond yields.
The asset that is prone to enormous volatility today is the yellow metal, gold. The precious metal is struggling to hold onto any gains.
Despite the massive sell off in the equity markets, we are failing to see any love for the yellow metal. Basically, gold prices are in a very tight spot. Yesterday, we saw the gold price violating another important psychological support level i.e. the $1,700 price mark.
Speaking from a technical perspective, there is no doubt that gold prices are way oversold, and a rebound is strongly on the cards. This particular rebound could take place today if the US NFP fails to impress the market. The most immediate support zone for the good price is between 1681 to 1641. While the resistance is at 1805.
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