A typical NFP trading week is about to have its final trading day. The entire week so far was characterized by the markets reversing the end of February moves sharply.
As such, the stock market indices in the United States opened the new trading week (and month), with a big behind. With stocks in the recovery mode last Monday and Tuesday, the risk-on sentiment revived, and the FX market began selling dollars again. Part of the risk-on move is to sell JPY and CHF – that is exactly what the market did this week. The USDJPY rose to above 107.50 yesterday, while the moves in the CHF pairs were even more impressive – AUDCHF and GBPCHF kept performing during the four trading days of the week.
The U.S. tech sector dropped about 2% on Wednesday as Tesla, and some Tesla ETFs (e.g., ARK) went under pressure. However, the selling did not affect the Dow Jones, for instance, that remained in tight ranges, keeping an eye on the highs. The support behind stocks was expected to come from Jerome Powell, which held a speech yesterday in the second half of the North American session. As always, when the Fed is on the wires, the market listens (and usually remains bid). Only this time, the Fed did not deliver.
On the commodities markets, oil and gold were key markets. On the one hand, gold has a hard time bouncing from the lows, and it keeps the bearish trend seen this year. On the other hand, crude oil bounced yesterday to a new high for the year, on the back of hawkish news from the OPEC meeting – no increase in supply.
The economic data this week revealed strong manufacturing and services sectors in the United States. The ISM data continues to point toward expansion in the two sectors, something that bodes well for the economic recovery and for today’s NFP report.
The ADP or private payrolls disappointed on Wednesday, but it is not the first time when the two reports diverge. Anything else from economic data had little or no impact on the markets, with the focus being on the U.S. Treasury yield evolution and its impact on the price of gold, the value of the dollar, and the stock market. We may say that the markets waited for Powell’s speech yesterday and the NFP report today.
Jerome Powell delivered a speech at a virtual event held by the Wall Street Journal, and questions from the audience were expected. He began by saying that inflation will likely rise but that the Fed believes that it will be a one-off. Also, he expressed confidence that hiring in the job market should pick up soon, fueling hopes of a positive NFP report later today.
What Powell did not say was that the Fed is ready to intervene to fight the rise in the long-term yields. As soon as markets realized that stocks fell, Dow Jones dropped a thousand points before recovering some losses towards the end of the trading day.
Besides the NFP report today, the Canadian Ivey PMI may trigger some volatility on the CAD pairs. Note, however, that the Canadian job data, usually released at the same time as the NFP report in the United States, is postponed until next Friday. This month is one of the few in the trading year when this happens.
Markets to Watch
Dax, EURUSD, AUDUSD – the markets in focus today.
Curiously enough, the Dax index futures did not participate in the selloff seen in the second half of yesterday’s North American session. In fact, the European futures spent the night in a tight range, with Dax holding above 14,000. The thing is that the recent weakness in the EURUSD exchange rate, now trading below 1.20, bodes well for European equities, so we should not be surprised to see a breakout above the horizontal resistance offered by the ascending triangle.
The EURUSD pair had a rough week. It broke below 1.20 and made a new low. As a funny thing, the EURUSD pair is back to 1.1950 on the NFP day – right where it was on the February NFP day. Will it bounce or continue to the downside? Elliott Waves theory suggests more continuation to complete an intervening x-wave part of a complex correction.
The Aussie appears to have broken the rising wedge on the back of the roaring dollar. More downside should find some kind of resistance to the Fibonacci levels, with the 61.8% in focus for traders with a medium-term horizon.
Winners and Losers
The CHF and the JPY are the main losers this week, while oil continues its impressive march.