Weekly Summary: Investors Need Weaker U.S. Labour Market

The S&P 500 broad market index has added more than 2.5% to 4518 points this week. U.S. 10-year Treasuries yields dropped to 4.10% from 4.22%, while the U.S. Dollar lost up to 1.4%. 

Risky assets had most favorable conditions this week as most of the macroeconomic data that was released in the United States this week was below consensus. This refers to Job Openings and ADP NonFarm Employment figures. Even U.S. Q2 2023 GDP came lower than expected. Core PCE Price index was the only data that met consensus.

All these data lowered a probability of Federal Reserve (Fed) interest rates hike in November. The probability of such 0.25% hike was estimated at 51% in the beginning of the week, and only 37% - at the end of it. Non-Farm Payrolls is the most important data that will affect investors bet on the future interest rates moves by the Fed. 

However, it seems that the U.S. economy become less consistent with the incoming data. Linear statistical modeling for Non-Farm Payrolls (NFP) and unemployment, which was quite effective before could not track existing development properly anymore. This model forecasts NFP at 180,000-220,000 new jobs created in U.S. economy in August beating consensus at 170,000. The unemployment level is forecasted at 3.5%, the same that was recorded in July. Other macroeconomic data points to a different trend, and the currency market signals weaker U.S. Dollar. All this is not consistent with the projected NFP figures.

Technically, the S&P 500 index continues to have a downside formation with the primary target at 4200-4300 points and extreme secondary targets at 3800-3900 points. The downside signal has been finally shaped with a short trade initiated at 4520 points. It would be better to close a part of the trade once the primary target will be reached.

Brent crude prices broke through the resistance at $83.00-85.00 per barrel. Now they are moving towards $93.00-95.00 per barrel. If prices would dive below $83.00 a primary downside scenario with a support at $74.00-76.00 per barrel will be initiated. If prices would fell below $74 per barrel a recession scenario with targets at $64-66 per barrel of Brent crude will be the option. 

Gold prices are moving inside the mid-term upside formation with targets at $2000-2100 per troy ounce that have already been met. But, the situation has changed dramatically as the important support level of $1980-2000 per ounce was smashed. The nearest support is set at $1890-1910 per ounce. The resent jump of prices to $1940-1950 per ounce doesn’t seen sustainable. So it would be better to be prepared for a downside, and opening short positions after a downside breakthrough of the support and retest of it.

The Greenback is seen correcting before a significant upside. The U.S. Dollar was losing up to 1.4% this week. A risky long trade with a small amount for GBPUSD from 1.27200-1.27400 with a target at 1.29400-1.29600, and the stop-loss at 1.25300 is intact. A long trade in the AUDUSD from 0.63800-0.64000 with a target at 0.66500 and the stop-loss at 0.63200 is also open.

If these trades will be successful, a further weakening of the Greenback could be expected. It would be better to wait for a decline of the EURUSD below 1.05000 to seek out sell opportunities for the Greenback in this regard.