Skip to content

🏆Gold Approaches $1,800 Ahead of NFP!

📢The July NFP report will be released today at 2:30 p.m.

US job market reports are crucial for investors, not only in the US but also around the world, as they tend to impact the dollar, equity markets as well as the level Fed rates. The strength of the labor market seems to be the only factor protecting the US economy from a real recession. The key question therefore is whether it remains strong enough to warrant further tightening of monetary policy.

What do you need to know before the publication of the NFP?

  • US employment has yet to return to pre-pandemic levels, but the labor fund hits new highs

  • Claims for unemployment benefits have increased in recent weeks. Last week saw 260,000 initial jobless claims, up from 160,000 in March

  • JPMorgan says initial jobless claims above 275,000 are a sign of a recession

  • Job postings (JOLTS) have fallen significantly recently but remain at a very high level of 10.7 million

  • The pace of hiring in the United States remains higher than that of layoffs

  • Wages in the retail and catering sectors are rising rapidly, leading to hiring problems in the construction, healthcare and industrial sectors

  • ISM employment sub-indices remain below 50 but rebounded from June

What do the markets expect from today’s release?

  • The median estimate points to an increase of 250,000 in US employment in July, following a gain of 372,000 jobs in June. If confirmed, it would be the lowest reading since December 2020

  • The unemployment rate is expected to remain unchanged at 3.6%

  • Wage growth is expected to slow from 5.1% to 4.9% year-on-year

  • Mo-on-month wage growth is expected to come in at 0.3% m-o-m, matching the previous month’s figure

How can the markets react?

Expectations for today’s NFP report remain high, but it looks like investors would like confirmation that the US economy is heading into a recession. It is therefore possible that they will be disappointed if wage growth remains strong. In such a scenario, yields should continue on an upward trajectory, providing support for the US Dollar. A job gain of over 200,000 and wage growth at or above 4.9% year-over-year would be positive for the economy.

USDJPY

The USDJPY currency pair experienced the largest downward correction since the start of 2021. This decline was fueled by a drop in US yields. However, the Fed remained hawkish in the last meeting, which put upward pressure on yields and USDJPY. The key resistance to watch on the pair is at the 135.00 area.

Source: xStation5

GOLD

Gold continues its V-shaped rally. Gold is moving higher even despite the recent rally in yields. Interestingly, we see a fairly strong correlation between gold and the S&P 500 index (US500, light blue overlay on the chart below). If the NFP index were to disappoint (payrolls below 150,000 and wage growth below 4.9% YoY), the likelihood of a rate hike could decline. This would be an opportunity for gold to complete the “V” shaped recovery. However, it should be noted that the price of gold is approaching the upper boundary of the market geometry, which may limit further upside.

Source: xStation5

“This material is marketing communication within the meaning of Art. 24(3) of Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Directive 2002/ 92/EC and Directive 2011/61/EU (MiFID II) Marketing communication is not an investment recommendation or information recommending or suggesting an investment strategy within the meaning of Regulation (EU) No. 596/ 2014 of the European Parliament and of the Council of 16 April 2014 on market abuse (Market Abuse Regulation) and repealing Directive 2003/6 / EC of the European Parliament and of the Council and Directives 2003/124 / EC, 2003/125 / EC and 2004/72 / EC of the Commission and Commission Delegated Regulation (EU) 2016/958 of 9 March 2016 supplementing Regulation (EU) No 596/2014 of the European Parliament and of the Council with regard to standards regulatory techniques relating to the technical modalities of objective presentation of r investment recommendations or other information recommending or suggesting an investment strategy and for the disclosure of special interests or indications of conflicts of interest or any other advice, including in the field of investment advice, to meaning of the law of 29 July 2005 on trading in financial instruments. (i.e. Journal of Laws 2019, item 875, as amended). All the information, analyzes and training provided are provided for information purposes only and should not be interpreted as advice, a recommendation, an investment solicitation or an invitation to buy or sell financial products. XTB cannot be held responsible for the use made of it and the resulting consequences, the end investor remaining the sole decision-maker as to the position taken on his XTB trading account. Any use of the information mentioned, and in this respect any decision taken in relation to a possible purchase or sale of CFDs, is the sole responsibility of the end investor. It is strictly forbidden to reproduce or distribute all or part of this information for commercial or private purposes. Past performance is not necessarily indicative of future results, and anyone acting upon this information does so entirely at their own risk. CFDs are complex instruments and come with a high risk of losing capital rapidly due to leverage. 81% of retail investor accounts lose money when trading CFDs with this provider. You need to make sure you understand how CFDs work and can afford to take the likely risk of losing your money. With the Limited Risk Account, the risk of loss is limited to the capital invested.

Leave a Reply

Your email address will not be published.