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.
The volatility of the gold market this week was mainly influenced by the US non-farm payrolls data (NFP). The data showed that 142,000 jobs were created in August, below market expectations of 160,000, and the July figure was also sharply revised down. This has heightened expectations that the Fed will cut interest rates at its September meeting, driving gold prices higher. Despite the overall weak non-farm payrolls data, the unemployment rate fell to 4.2% from 4.3% and average hourly earnings rose 0.4% month-on-month, higher than the expected 0.3%, which could put some limits on gold's upward momentum. In addition, geopolitical tensions, especially a potential ceasefire between Israel and Hamas and the latest developments in the war between Ukraine and Russia, have also provided safe-haven support for gold. The ongoing fighting in eastern Ukraine, in particular, has kept market sentiment on edge, prompting investors to continue seeking safe havens such as gold.
On the technical chart, gold has continued to rebound since hitting a low in the $… area, forming two consecutive daily chart "hammer line" patterns, indicating that market sentiment has turned bullish in the short term. The pattern usually signals a reversal, and subsequent gains confirm this bullish trend. If gold can break through the all-time high of $…, a key resistance band, the market could further test the upside target of $…. At present, gold remains in a long-term bullish channel, with the Relative Strength Index (RSI) on the daily chart in the region above neutral, showing the potential for further gains. In the medium term, as long as gold remains above the 100-day simple moving average (SMA), the trend will remain in favor of the bulls. If gold fails to hold current support, initial support will be in the $… to $… area, which provided effective support in mid-August. A break below this level could expose gold to more significant downside risk, with the target pointing to the 50-day moving average near $….
Crude oil prices have been volatile this week, with WTI crude falling to a new low for the year on Thursday, falling below the $70 mark. Nevertheless, the further decline in oil prices is largely influenced by the lack of clear communication from the Organization of the Petroleum Exporting Countries and its Allies (OPEC+). The market reacted coolly to the OPEC+ agreement that could delay the resumption of production, with traders expecting OPEC to take more influential measures to support prices, but no concrete action has yet been seen. At the same time, the US economic data also affected the oil market sentiment. The latest US non-farm payrolls report showed 142,000 new jobs created in August, below market expectations of 160,000, and July's figure was sharply revised down to 89,000. Still, the increase in overtime in the jobs report and other positive jobs data suggested that U.S. economic activity remained healthy, which helped support a rebound in the dollar and curbed the upside for oil prices. In addition, the market is also closely watching the crude oil inventory data in the U.S. Energy Information Administration (EIA) report. The latest data showed a sharp drop of 6.873 million barrels in crude inventories, much bigger than the 900,000 barrel decline that had been expected, easing market concerns about oversupply. Still, investors remain cautious about OPEC+ 's actions, seeing a limited impact on oil prices.
Technically, crude oil prices remain under downward pressure. WTI crude oil prices broke through the August 5 low of $… this week and are currently hovering around $…, showing the risk of further declines. The key support below is at $…, which is the first support area for the market to watch closely. If this support is effectively breached, oil prices could dip further to $…, the low of the June 2023 triple bottom.
On the upside, if oil prices can rebound, the first resistance level will be the $… level. Further resistance is at $…, which coincides with the downtrend line and the 200-day simple moving average (SMA). If the bulls are able to break through this resistance, the 100-day moving average at $… will be the next target, but resistance may be encountered here.
