8th July 2019 - The US labor market made the Fed in check

Walid Salah Eldin

Active member
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The greenback is still able to hold what it gained versus its rival currencies last Friday following The release of June US labor report which has shown adding 224k of Jobs out of the farming sector, while the consensus was referring to rising by only 160k, after gaining in May only 75k have been revised down to 72k.

The report has shown also that the wages inflation pressure is still running by the same pace, as The average earning per hour rose again in June by 3.1% year on year, as it has been in May.

The report dampened the odds of cutting the interest rate in the near term, After The FOMC mentioned in its most recent economic assessment following its last meeting by the end of last June that it became closely monitoring incoming info to act as appropriate to prop up the economic expansion, dropping down its patience wear on the current increasing uncertainty weighing down on the economic outlook in US.

The US labor market strength is not the only reason that can hold the Fed back from cutting rates meanwhile, but also The US-China Trade talks which resumed recently and the US equities indexes which are actually at record highs can show that the Financial and Banking sector may be exposed to higher used-leverage can risk its stability.

After Trump and Xi Jinping managed in Osaka to resume the trade talks, The US Equities could be boosted, but later they came under pressure and the greenback became more attractive as the easing Trade tension between US and China erodes the hopes for interest rate cut from another side.

So, It is very important this week to listen to The Fed's chief Jerome H. Powell's testimony before Congress on monetary policy to know whether the Fed is to be courageous enough to refrain from cutting rates longer as the economy evolution is still running well, Or it is to obey and submit to Trump's demands for cut, the equities markets participants' speculations for cut, The weaker pace of economic expansion and the current lower inflation rates which is expected to be highlighted again this week with the release of US June CPI which is expected to show yearly rising by only 1.5%, after increasing in May by 1.8%.

The FOMC recent meeting was like paving for cutting the interest rate soon and that formed continued pressure on the yield curves sending UST 10 year yield to its lowest level since November 2016 at 1.95% last week, before rebounding to 2.04% on the release of June labor report.

UST yields rising made USD more attractive and weighed down on Gold which dived below $1400 by last Friday on sparked higher than expected interest rate outlook following the release of US labor report but it crept up again above it in the beginning of this week on exchanged threats between US and Iran.

Historically, The Fed does not cut rates amid higher than 150k added jobs out of the farming sector and average earning per hour rising by more than 3% yearly in the same time. These data could refer to interest rate hiking not cutting!

So, The equities markets will be in check this week, after it had been boosted recently by the major central banks tendency to easier monetary policy, amid worries about the global economic slowdown because of the US trade wars influences.

BOE chief Mark Carney warned recently about risk of protectionism can widespread slowdown in the global economy that may require policies response.

While ECB is waiting for further economic stimulating measurements ahead under its next leader Christine Lagarde who is to face also lower inflation pressure in EU to care of.

Trump nominated Christopher Waller and Judy Shelton as new FOMC members and the markets interpreted this action as a push toward easier monetary policy.

Trump named The Fed the biggest risk to the US economy in a tweet, following the fabulous release of US labor report which hints that there is no need for cutting the interest rate soon and if there is to be cutting to come, it won't satisfy his requirements.

EURUSD-Daily-08-07-2019 02-17-08 م.jpg

EURUSD is trading now close to 1.1215, after it has extended its decline from its lowered formed high on last Jun. 25 at 1.1412 below last Mar. 20 peak at 1.1447.

After forming this lower high, The pair dropped again below its daily SMA200 and following last Friday slide extension, it became trading below its daily SMA50, its daily SMA100.

EURUSD is now in its second day of being below its daily Parabolic SAR (step 0.02, maximum 0.2) which is reading today 1.1407, as the pair resumed the slide following consolidation close to 1.13.

EURUSD daily RSI-14 is referring now to lower existence inside the neutral region reading 42.014

While EURUSD daily Stochastic Oscillator (5, 3, 3) which is more sensitive to the volatility is having now its main line in its oversold area below 20 at 10.349 in intersection with its signal line which is just higher at 9.813, after sliding inside the neutral area with no negative crossover inside of it, as the previous consolidation around 1.13 was short-lived

Important levels: Daily SMA50 @ 1.1237, Daily SMA100 @ 1.1258 and Daily SMA200 @ 1.1329

Experienced S&R:

S1: 1.1181

S2: 1.1106

S3: 1.0838

R1: 1.1214

R2: 1.1447

R3: 1.1514

Have a good day

Kind Regards

Global Market Strategist of FX-Recommends

Walid Salah El Din
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