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Weekly Focus: U.S. Payrolls Raise Questions over Possible Recession

June Non-Farm Payrolls published last Friday brought unexpected positive data to the surface, raising doubts about the possibility of a recession that is widely expected by the end of 2022. According to the U.S. Bureau of Labour the unemployment level in June remained at 3.6%, while 372,000 new jobs were created compared to 384,000 in May.

However, such positive developments are not a reason for celebration, as strong labour market may force the Federal Reserve (Fed) to hike its interest rates above the widely expected 75 bp, or even by 100 bp during its meeting in late July. This move may be justified if prices in the United States continue to rise. For June the Consumer Price Index is expected to go up to 8.8% vs 8.6% a month before. If prices continue to surge, democrats could be blamed for not being able to take control of inflation, making a democratic majority in congress  difficult task to achieve  during the upcoming autumn elections this year. So, any further price spikes would likely be neutralised by the Fed by raising interest rates as much as needed to tame inflation.

This week investors will be looking at the Q2 corporate season reports that traditionally start with the banking sector. Investors are expecting banks to present disappointing figures considering a slowdown in the U.S. economy. But the actual reaction could be a surprise.

The S&P 500 broad market index is moving in a downside formation with a target at 3450-3460 points by the beginning of August. However, the situation may change if the index returns above 3940 points. If it does so targets would be revised to the upside formation at 4050-4150 points. The most important factor for the S&P 500 is for it to hold over the 3670 points landmark on Monday, which is highly likely considering its current prices at 3880 points.

The oil market looks promising this week as U.S. President Joe Biden is planning a trip to Saudi Arabia hoping to push Saudis to pump more oil to replace oil from Russia in the market. His success seems to be unlikely. The technical picture suggests a new upside horizon for Brent crude with a primary target at $135-145 per barrel with extreme peaks to $160-180 per barrel by the middle of September.

Gold prices continue to decline hitting $1732 per troy ounce, rolling back to the $1735-1740 range. The range of $1720-1740 per ounce is a very strong support and may not be broken through by the end of July. So, half of the short trades opened at $1860-1880 could be retained by that time.

EURUSD is consolidating after achieving primary targets at 1.00500-1.01500. The pair is hovering around 1.01250 with no clear signals for a further direction. So, it would be wise to wait for any signals to appear first before considering any trades.

GBPUSD continues within the aggressive downside formation with the primary target reached at 1.19500-1.20500. However, if the Cable closes this Monday above 1.20300, the pair may reverse upside towards 1.21500-1.22000.