Today is an extremely important day of the month for market players because today we will get to see the latest reading of the US NFP data. This economic reading commands the most attention among investors and traders. The economic data may not only set the trading tone for today, but possibly for the rest of the month. As always, the Fed will watch this data very closely, and it is highly likely to influence their monetary policy decision.
There is an air of calmness in US and European futures market ahead of this data. It is likely that traders will continue to take a more cautious approach ahead of the US NFP data. Generally speaking, there is minimal volume in the markets ahead of this data as the action tends to happen only after the economic reading. Market players expect the US NFP number to produce another set of decent readings, which could only push the US dollar index higher. The US ADP number released earlier this week has already confirmed that the US labour market is robust.
The US NFP data will be released at 13:30 BST, and the forecast for the number is 265K, while the previous number came in at 315K. The US unemployment rate is also expected to print the same reading as the previous month which was 3.7%. As for the Average Hourly Earnings m/m, the data is also expected to print the same reading as the previous one of 0.3%.
The Market Playbook
Now the important part and how this is going to impact the markets. The US ADP number, which came in on Wednesday this week, has set a positive tone for the US NFP data as the US ADP number came in better than the forecast, and indicated that the US labour market is still holding up well despite some concerns about a potential recession.
The range of US NFP estimates for today’s number is wide, and it is expected to be anywhere between the 150K to the 300K mark. But we think the most important number is 370K. Meanwhile, anything lower than 100K could throw the stock market out of balance as well as the Fed. That’s because if the number comes out below the 100K reading, market players will begin to question the current aggressive stance from the Fed.
We can remind ourselves that the Fed has been increasing the interest rate aggressively this year, and there is no doubt that the Fed wants to carry on with their monetary policy by front-loading it, and this means that in the coming meeting, we could expect the Fed to raise the interest rate by pretty much the same amount.
Nonetheless, a soft number will make the Fed question its current monetary policy as the Fed may not want to tighten the monetary policy while economic conditions are deteriorating.
On the flip side, if we see a number that comes better than the market expectations, the Fed will feel comfortable with its monetary policy. They are likely to adopt a more hawkish monetary stance, and an interest rate hike of more than 50 basis points may become likely again. Several Fed members have already indicated that they are less concerned about tipping the US economy into a recession as the priority is to control inflation. This has made many traders wonder if the Fed is on a path which could lead them to another terrible policy mistake.
The precious metal is likely to post another week of gains and if that happens, we will have two consecutive weeks of gains for the gold prices. The gains for the precious metal for this week have been handsome and they have been mainly due to the weakness in the dollar index.
On the fundamental side, the main event traders will be looking at today will be the US NFP and a strong number may bring more bullish bets for the precious metal, which may in turn push the price of gold lower.
In terms of technical analysis, the price is flirting with the 50-day SMA on the daily time frame and the RSI shows that prices have gone too far and too quick. This means that we are likely to see a pull back in gold prices. This means that the price may fall below the 50-SMA and if it continues to trade below this average, bears are likely to take a strong control of the price action.
The near-term resistance for the gold price is at 1740, while the support is at 1660.
In the crypto space, Bitcoin’s price continues to show a lot of resilience and it seem like Bitcoin for the first time in a long time is doing its own thing. We have not seen a major meltdown in the Bitcoin price despite the strength of the dollar index. The correlation with the stock market is losing its steam which means that while the equity markets continue their downtrend, Bitcoin is still consolidating. This is certainly a strange thing for the Bitcoin price which has been trading very closely with them.
Crude and Brent oil prices are on track to record their biggest weekly gain since March this year. The move is on the back of the massive production cut by the OPEC cartel. The cartel is serious about keeping the prices to a level which they deem are more reasonable, and the strongest player of the cartel has ignored all the warnings or consequences of this move. The Biden Administration is immensely disappointed and angry with the move pulled by OPEC+ as their headaches have come back relating to oil prices. Now questions are being raised if Saudi Arabia’s relation with its biggest ally will deteriorate, and what that could mean for geopolitical tensions in the region.
In terms of technical price action, there is no doubt that the bulls are back in the driving seat as the weekly chart shows that the price has jumped above the 100-week SMA which is a bullish sign. The next major resistance for crude oil price is at $93 and this is where the 50-week SMA is trading.