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Dollar bides it time after strong jobs data

November 08,2021 08:44:49

Overnight Headlines

*US stocks continued higher after the decent US jobs report

*USD made new highs before dropping back

*US 10-year Treasury yields fell sharply, below 1.45%

*Gold hits highest level since the start of September

*Musk urged to sell 10% tesla stake in Twitter poll

US equities pushed further into unchartered territory last week. They rallied 2%, the best performance since June. The S&P500 has generated returns including dividends of 27% so far this year. It has also set record highs on more than 60 trading days. Friday’s strong jobs numbers, the easing pandemic and positive earnings are all supporting markets. The positive tone has not carried over to Asian where indices are more mixed. Futures in Europe and the US are in the red.

USD initially made new cycle highs at 94.62 immediately after the US jobs data. EUR/USD dropped to 1.1513 but quickly rebounded. USD/JPY seemed to re-anchor itself to US treasury yields falling below 114. GBP dipped to a low of 1.3424, close to the pivot low at 1.3411 before also retracing. Worse-than-expected Canada jobs saw USD/CAD push into the 200-day SMA at 1.2480 before modestly selling off.

Market Thoughts – Post-NFP

The US jobs report was strong across the board. The headline number came in better than expected (531k vs 450k). There were also significant upward revisions to the prior two months, adding 235k jobs. Wage growth was in line and remains high. The only small issue was that there were few new entrants to the labour force.

For the Fed, there is a little bit more pressure as it assesses its full employment goal. But the decline in yields means markets already unwound some of the recent bets on pre-emptive central bank action. This week, as is generally the case after NFP, there is little top tier economic data. The focus will likely turn to Fed speeches, US fiscal policy and spill over from general risk sentiment.

Chart of the Day – Gold jumps higher

Gold enjoyed two big days of gains to end last week. Major central banks reinforced the view that current inflationary pressures would fade, dimming the prospect for faster rate hikes. Focus turns to Wednesday’s inflation figures after real yields dropped below -1% at the end of last week. The recent fall in interest rates across the globe benefit the precious metal as they reduce the opportunity cost of holding non-yielding bullion.

Gold hit its highest levels in over two months and is holding at the highs this morning. Major resistance comes in around $1834. This barrier has held prices on several occasions since mid-July. Support is initially the halfway point of the June to August move at $1798. The 200-day SMA sits just below at $1780.

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