The price of oil reached new highs in the pandemic, trading yesterday above $76. Ahead of the July NFP report, US equities remain bid while the US dollar looks for direction.
Equities started with a strong note in July. Both the European and US indices hover close to their all-time highs, while the US dollar is stronger against its peers.
The S&P500 and the Dow Jones indices outperformed on the first trading day of the month. With only a few hours left until the NFP Report is released, the US stocks appear to be in a win-win situation.
On the one hand, a better-than-expected report would be bullish for the US stocks. It shows that the US economic growth continues, and the recovery is stronger than expected. On the other hand, a worse than expected report may weigh on the stock market initially, but then the expectations are that the Fed will postpone its tapering decision if the labour market did not improve – hence, bullish for stocks once again.
Commodities outperformed as well, diverging from the US dollar’s strength seen in the FX markets. Oil trades above $75 after reaching over $76 yesterday and gold recovered some of the lost ground and now trades close to $1,800.
The trading week ends today with the most important piece of economic data to be released in a few hours. The NFP report and its importance is the dominant driver of price action during the NFP week, often leading to tight ranges.
Equities traded with a bid tone for the entire week. So did oil. But the NFP report might change all that, depending on the labor market evolution.
The market participants expect the US economy to have added 700k new jobs in June, and that the unemployment rate will decline further, to 5.6%. Any positive surprises in the two numbers are enough to create pressures on the Fed to act sooner on its tapering decision.
Markets to Watch
Crude oil, EUR/USD, USD/JPY – markets in focus today.
Crude oil completed the measured move of an ascending triangle it formed on the daily chart as it reached $76 yesterday. While above $70 it remains bid, and only a move below would signal some kind of a correction.
The EUR/USD is about to reach major dynamic support in the 1.18 area. A stronger than expected NFP report should be enough to push the pair through support as expectations will grow that the Fed will taper the asset purchases sooner rather than later.
One of the strongest bullish trends this year formed on the USD/JPY pair. The daily chart reflects the weakness of the Japanese yen, a weakness seen in other currency pairs too. Bears will have a case only on a move back below 110. Without such a drop, the path of least resistance remains the upside.
Winners and Losers
Crude oil price is the net winner of the trading week, climbing above $75. Equity markets are strong too, while the US dollar awaits the NFP report for further direction.