weak data

First impressions can be deceiving. US non-agricultural employment rose by 209,000 in June fell short of the Bloomberg expert consensus forecast and was the weakest since December 2020. Moreover, the data for April and May were revised down by 110,000. Initially, the market perceived the report as weak, which led to a drop in Treasury bond yields and a rise in EUR/USD above 1.092. However, the devil is always in the details. In the lead-up to the report, investors were counting on strong numbers as private sector employment from ADP rose by nearly half a million people.   However, the actual non-farm payrolls turned out to be worse than that report by the largest amount since the beginning of 2022. This fact can be seen as a sign of a cooling labor market. Nevertheless, unemployment in June dropped from 3.7% to 3.6%. As long as it does not increase, we can forget about a recession in the US economy. In addition, the average wage increased faster than expected, so it's still too early for the Federal Reserve to relax.     The employment report for the US private sector turned out to be mixed. It reduced the probability of a rate hike to 5.75% in 2023 from 41% to 36%, which worsened the position of the US dollar against the main world currencies. However, Deutsche Bank noted that only a figure of +100,000 or less for non-farm payrolls could change the worldview of FOMC officials and make them abandon their plans for two acts of monetary restriction this year. June employment data gave food for thought to both the "hawks" and "centrists" of the Fed, as well as the "bulls" and "bears" for EUR/USD.   Now, investors' attention is shifting to US inflation data and Fed Chair Jerome Powell's speech in Jackson Hole. Bloomberg experts expect consumer prices to slow in June from 4% to 3.1%, and core inflation from 5.3% to 5% year-on-year. CPI is moving so quickly towards the 2% target that it's as if Fed officials have not changed their minds. Could it be that this time the financial market will be right? And those who went against the Fed will make money? We'll see.     Not everyone agrees with this. ING notes that the minutes of the FOMC's June meeting set a very high bar for incoming data for the Bank to abandon its plans. The US labor market report is unlikely to have surpassed this bar. Core inflation continues to remain high, and the economy is firmly on its feet.   All this allows ING to predict the EUR/USD pair's fall towards 1.08 within the next week. Technically, on the daily chart, there is a battle for the fair value at 1.092. Closing above this level will allow you to buy on a breakout of resistance at 1.0935. This is where the upper band of the consolidation range within the "Spike and Ledge" pattern is located. On the contrary, if the 1.092 mark persists for the bears, we will sell the euro from $1.089.      

FX Daily: Brazil set to start its easing cycle Markets were taken aback by Fitch's downgrade of US debt yesterday. EUR/USD rose, but the greenback is enjoying safe-haven demand to the detriment of high-beta currencies. We doubt this will be a long-lasting driver for FX markets and the focus will rapidly shift back to data. In Brazil, the central bank should start cutting rates today: we expect 25bp.   USD: Downgrade unlikely to be long-lasting driver The dollar resilience was untouched by the soft block of data released yesterday, where the ISM manufacturing rebounded less than expected and remained quite deep in contractionary territory, and JOLTS figures showed a bigger than anticipated drop in job openings. Markets are clearly turning a blind eye to second-tier activity figures, and expectations that jobs figures will still be robust this week likely prevented any further dovish repricing in the USD curve, and left other factors (mostly weak data from China) to keep the dollar supported. A surprise development that shook FX markets late in the US session yesterday was the announcement that Fitch downgraded the US from AAA to AA+, with a stable outlook. Fitch mentions the fiscal deterioration over “the next three” years and elevated government debt as the main reasons for the downgrade, which is the first one since 1994. This puts the US fiscal discussion back in scope for investors after the debt ceiling saga was quickly put on the back burner. EUR/USD jumped on the news, but high-beta currencies suffered, and the dollar seems to have been shielded by safe-haven demand. Will this prove to be a driver for the FX market beyond the knee-jerk reaction? We doubt that. Treasury Secretary Janet Yellen described the downgrade as “outdated”, and markets will likely see it in a similar way (i.e. strictly tied to the debt ceiling standoff) especially in a week full of important data releases and with the next Federal Reserve rate hike hanging in the balance. Today, the ADP employment figures are the key highlight on the data front. In July, ADP figures more than doubled consensus estimates (almost 500k) but the official payroll print was a more modest 209k.

Analysis of transactions and tips for trading GBP/USD The test of 1.2720 on Friday afternoon, coinciding with the rise of the MACD line from zero, prompted a buy signal that led to a price increase of around 50 pips.   Weak data on the US labor market led to a sharp rise in GBP/USD. However, this did not last long, as already during today's Asian session, the pair fell, compensating for most of Friday's growth. In addition, buyers should not expect much today because only good data on the UK housing price index and confident defense of the level of 1.2705 will there be chances of a rally. For long positions: Buy when pound hits 1.2736 (green line on the chart) and take profit at the price of 1.2772 (thicker green line on the chart). Growth may occur. However, when buying, ensure that the MACD line lies above zero or rises from it. Pound can also be bought after two consecutive price tests of 1.2705, but the MACD line should be in the oversold area as only by that will the market reverse to 1.2736 and 1.2772. For short positions: Sell when pound reaches 1.2705 (red line on the chart) and take profit at the price of 1.2673. Pressure will increase with weak data and inactivity around 1.2705. However, when selling, ensure that the MACD line lies below zero or drops down from it. Pound can also be sold after two consecutive price tests of 1.2736, but the MACD line should be in the overbought area as only by that will the market reverse to 1.2705 and 1.2673.   What's on the chart: Thin green line - entry price at which you can buy GBP/USD Thick green line - estimated price where you can set Take-Profit (TP) or manually fix profits, as further growth above this level is unlikely. Thin red line - entry price at which you can sell GBP/USD Thick red line - estimated price where you can set Take-Profit (TP) or manually fix profits, as further decline below this level is unlikely. MACD line- it is important to be guided by overbought and oversold areas when entering the market   Important: Novice traders need to be very careful when making decisions about entering the market. Before the release of important reports, it is best to stay out of the market to avoid being caught in sharp fluctuations in the rate. If you decide to trade during the release of news, then always place stop orders to minimize losses. Without placing stop orders, you can very quickly lose your entire deposit, especially if you do not use money management and trade large volumes.   And remember that for successful trading, you need to have a clear trading plan. Spontaneous trading decision based on the current market situation is an inherently losing strategy for an intraday trader.    

Analysis of transactions and tips for trading GBP/USD The test of 1.2720 on Friday afternoon, coinciding with the rise of the MACD line from zero, prompted a buy signal that led to a price increase of around 50 pips.     Weak data on the US labor market led to a sharp rise in GBP/USD. However, this did not last long, as already during today's Asian session, the pair fell, compensating for most of Friday's growth. In addition, buyers should not expect much today because only good data on the UK housing price index and confident defense of the level of 1.2705 will there be chances of a rally. For long positions: Buy when pound hits 1.2736 (green line on the chart) and take profit at the price of 1.2772 (thicker green line on the chart). Growth may occur. However, when buying, ensure that the MACD line lies above zero or rises from it. Pound can also be bought after two consecutive price tests of 1.2705, but the MACD line should be in the oversold area as only by that will the market reverse to 1.2736 and 1.2772. For short positions: Sell when pound reaches 1.2705 (red line on the chart) and take profit at the price of 1.2673. Pressure will increase with weak data and inactivity around 1.2705. However, when selling, ensure that the MACD line lies below zero or drops down from it. Pound can also be sold after two consecutive price tests of 1.2736, but the MACD line should be in the overbought area as only by that will the market reverse to 1.2705 and 1.2673.   What's on the chart: Thin green line - entry price at which you can buy GBP/USD Thick green line - estimated price where you can set Take-Profit (TP) or manually fix profits, as further growth above this level is unlikely. Thin red line - entry price at which you can sell GBP/USD Thick red line - estimated price where you can set Take-Profit (TP) or manually fix profits, as further decline below this level is unlikely. MACD line- it is important to be guided by overbought and oversold areas when entering the market   Important: Novice traders need to be very careful when making decisions about entering the market. Before the release of important reports, it is best to stay out of the market to avoid being caught in sharp fluctuations in the rate. If you decide to trade during the release of news, then always place stop orders to minimize losses. Without placing stop orders, you can very quickly lose your entire deposit, especially if you do not use money management and trade large volumes. And remember that for successful trading, you need to have a clear trading plan. Spontaneous trading decision based on the current market situation is an inherently losing strategy for an intraday trader.    

Slowing Europe  In Europe, the latest data released yesterday showed that growth and industrial production slowed, but slowed less than expected, while employment deteriorated less than expected – giving the European Central Bank (ECB) a good reason to continue its fight against inflation. But on a microscopic level, the Ifo said that Germany's skilled worker pool is worsening. The Netherlands unexpectedly slipped into recession after showing two straight quarter contraction, and Eastern Europe continues feeling the pinch of Ukrainian war; the Polish economy printed a 3.7% contraction. Plus, Europe's got a China problem. The European luxury goods have been supporting a rally in the European stocks as a result of higher Chinese purchases of the luxury products. But the souring economic conditions in China, falling home prices, rising unemployment and deteriorating sales growth weigh on valuations of companies like LVMH and Hermes. The Stoxx 600 is getting ready to test the 200-DMA, near 453, to the downside, and trend and momentum indicators hint that a deeper selloff could be on the European stocks' menu this quarter.   On the currency front, the weak data – even though it was stronger-than-expected, combined with a broad-based surge in the US dollar, kept the EURUSD below the 100-DMA yesterday, near 1.0930. The pair fell to the lowest levels since the beginning of July and the strengthening bearish momentum calls for a deeper downside correction. The next natural target for the EURUSD bears stands at 1.0790, the 200-DMA. The ECB will likely keep its hawkish stance unchanged, but when the Fed hawks step in, the other central bank hawks just need to wait before their hawkishness is reflected in market pricing