Today will be very important with the NFP with the expectation is for 180K this month. The reason why this NFP is so important is because a bad NFP and it is highly likely an interest rate increase this year is pretty much off the table, and to keep the possibility alive a strong reading is needed. In addition, the last 2 NFP’s were quite extreme with a very bad one in May and a very strong one in June, so hopefully we will get some moreclarity on the actual state this month.
One factor that has to be taken into consideration is that together with the NFP there is a lot of other data released as well, most notably the unemployment rate, participation rate and wage growth (average hourly earnings). Another point to look out for are revisions of last month’s number. Sometimes there can be quite a large revision of the data of the previous month, which in turn can have a considerable effect as well, usually as a bit of a belated reaction as the main focus naturally is on the new number.
The trading pattern we usually see a large move, then a small retracement, and then a continuation of the initial move. The USD has been weakening quite a bit recently, so a strong reading could provide a serious correction in the USD crosses as well as gold.
Currencies
EUR/USD – moved down to hit the support around the 1.1116 level before correcting slightly up. We will wait for the NFP to see which direction we will go.
USD/JPY – is trading down a little but, even though the USD strengthened, as the JPY is still holding firm after the latest disappointing action from Japan which started last week. We will see if the NFP will be able to initiate a W formation or if we will break below the 100 level.
GBP/USD – saw a drop of nearly 400 pips after the BOE did what was expected and even went a little beyond. The fact that they cut the interest rate by 0.25% was widely anticipated, but they also increased QE by £60 billion, which was not entirely expected. The vote to cut the interest rate was unanimous, while the vote to increase QE was a 6-3 split. In addition, the door is open for another cut this year as well as more QE. The BOE expects that the rate can be lowered to, but slightly above 0%, and is unlikely to turn negative. It also sees an economic contraction but not a recession which is not a surprise and that inflation will rise to above 2%. The BOE also expects a significant slower growth with only 0.8% in 2017 while previously it expected 2.3%.
USD/CAD – dropped further as we saw another move upwards of the oil price. We can see that there is some support in recent days around the 1.30 level. We will keep looking at the oil price as always, as well as the NFP. A further drop in oil price and a strong NFP and we could see the pair finally break through the 1.312 and 1.32 levels.
Indices
S&P 500 – has been moving up again, in part because of higher oil prices which boosts the energy sector, and is trading close to the resistance level again.
Commodities
Gold – was trading down for most of the day, but turned around after the BOE decisions and it bleaker outlook, which increased the demand for the safe haven, even though the USD strengthened. The NFP will likely decide if we will mark a new 2 year high and break above the 1375 level, or head down for a correction.
Oil – moved up again, still in light of the large drop in gasoline inventories and also the drop in US production. We saw a further upwards move after OPEC’s Secretary General said that he does not see a real increase in US production even though the number of active rigs has been increasing. The move up is in large part of the reaction of the drop in gasoline inventories which has resulted in a bit of a short squeeze, as the fundamentals have not changed much, unless we will see this trend continuing. Even then, we see that the oil inventories are on the rise. The nearest resistance would be the downwards trend line.
Stocks
Berkshire Hathaway (NYSE:BRKa) – the company of Warren Buffet will be releasing its earnings today.
LinkedIn (NYSE:LNKD) – reported strong earnings with a revenue of $933 million versus and expected revenue of $898 million. Over all though, the company reported a loss of $119 million in the second quarter. LinkedIn did see an increase also in revenue and members, something Microsoft (NASDAQ:MSFT) will be happy about after buying the company for $196 a share back in June.