Article by: ETO Markets

This week, the foreign exchange market was mainly influenced by the US employment data, manufacturing activity and the Fed policy expectations, which led to the strengthening of the dollar and the movement of other currencies against the dollar.

First, according to the JOLTS Job Openings Report for July released by the U.S. Bureau of Labor Statistics, the number of job openings fell sharply from the revised data in June to 7.673 million, which was lower than expected. This shows slowing demand in the labor market, adding to concerns about weak economic growth. However, the ADP National Employment Change report showed expectations for private sector hiring increased to 150,000 in August from 122,000 in July, suggesting the labor market remains resilient. Factory orders also beat expectations, rising 5 per cent month-on-month in July, a marked improvement from -3.3 per cent in June. That suggested a pick-up in demand from the US manufacturing sector, which boosted sentiment even though activity remained in contraction territory.

At the same time, the market is closely watching the upcoming August non-farm payrolls report, which is expected to show a rise in non-farm payrolls from 114,000 to 163,000, and the unemployment rate may fall from 4.3% to 4.2%. This will have an important impact on whether the Federal Reserve cuts interest rates in September. According to Chicago Board of Trade (CBOT) Fed funds futures data, the market is now expecting the Fed to ease 106 basis points by the end of 2024. This has increased expectations of a shift in Fed policy, and while the dollar remains strong, expectations of further rate cuts set the stage for a potential weakening of the greenback in the coming months.

This week, the EUR/USD rebounded to near 1.1050 as investors sold the dollar, but remained limited by technical resistance at 1.1100. Market risk sentiment is tilted towards "risk on" status, mainly due to increased expectations of an imminent interest rate cut by the Federal Reserve. Us labor market data continues to be the focus of market attention this week, especially the upcoming non-farm payrolls (NFP) data, which will have an important impact on the Federal Reserve's monetary policy.

The US JOLTS job vacancy data for July came in below expectations, with 7.673 million new jobs added, below market forecasts of 8.1 million, adding to concerns about a weakening US Labour market. Against the backdrop of the Fed likely to start cutting rates on September 18, the market tends to expect a 50 basis point cut and a 100 basis point cut by the end of 2024. In Europe, eurozone retail sales for July, the only economic data to watch, are expected to rise 0.1% year on year, up slightly from -0.3% previously.

The EUR/USD is currently supported by technical support, holding near …. Despite the upward trend in the middle of the week, the pair is still below the … mark, and the bullish momentum of the market has been somewhat suppressed. Looking at the technical charts, the pair remains well above the 200-day Exponential Moving Average (EMA) of …, but faces the risk of a further pullback to the 50-day EMA … in the near term. The bulls are still trying to hold their ground, but need to break the … mark to extend the uptrend.

GBP/USD rebounded 0.25% as the pair remained trapped in short-term volatility despite an improvement in market risk sentiment. With less impact from UK economic data for the rest of the week, the direction of the pound depends more on the overall market flows, especially the fluctuations of the US dollar. Weaker-than-expected JOLTS job openings data for July heightened concerns about a weakening U.S. labor market, putting the market more focused on Friday's non-farm payrolls (NFP) data, which will have a major impact on the extent of the Federal Reserve's upcoming interest rate cut.

At present, the market is widely expected that the Fed will start the rate cut cycle at the September 18 meeting, possibly by 25 or 50 basis points, which will continue to influence the direction of the dollar and thus the GBP/USD.

Despite the rally in GBP/USD on Wednesday, the pair remained below the multi-month high of … and remained near recent highs. Technically, the price remains firmly above the 200-day exponential Moving Average (EMA) of …, indicating that the overall bullish trend remains in place. In the short term, support for GBP/USD is at the 50-day EMA near …. If this level is broken, it could trigger further downward pressure. However, if prices continue to stay above this level, there is still room for a further rebound.