European and US stocks finished lower yesterday as traders remained a little nervous about the respectable US non-farm payrolls report that was released on Friday.
Yesterday was a quiet day in term of big picture stories, and the sell-off that global stocks suffered on Friday spilled over to yesterday’s session.
Seeing as the US added 224,000 jobs in June, some traders are less confident the Fed will lower interest rates this month, and that is why equities have pulled back in the previous two sessions. Some dealers got too fixated on the chatter that the Fed will lower rates this month, and possibly later this year too ,and that was a major reason why stocks, and in particular US stocks, rallied. The latest US jobs report has cast some shadows over the prospect of lower rates from the US central bank, and now some investors are reassessing the situation.
Larry Kudlow, an economic advisor to the Trump administration, said that US-China trade talks will continue this week. The meeting between President Trump and Xi Jinping was a small step in the right direction, but there is still a long way to go. Overnight, stocks in Asia broadly traded lower as the cautious sentiment has gone global.
The greenback is making a comeback thanks in part to the US employment report, and in turn that has put pressure on the euro and sterling. No doubt, the chatter about lower rates from the Fed will still do the rounds, but looser monetary policy from the ECB could be on the cards later this year, and the Bank of England will have to deal with Brexit in a few months.
Gold lost a little ground yesterday due to the firmer US dollar. In recent months, there has been a strong inverse relationship between gold and the US dollar, and the rebound in the greenback hurt the commodity. Despite gold’s recent dip, the metal is still in a wider bullish trend, and while it holds above the $1,380 region, the broader positive move should continue.
Italian retail sales will be posted at 9am (UK time) and economists are expecting a reading of 0.2%.
The US JOLTS report will be released at 3pm (UK time), and economists are expecting 7.47 million, which would be a slight improvement on the 7.44 million posted in April.
Jerome Powell, the head of the Fed, is due to speak at 1.45pm (UK time), and traders will be playing close attention to the update, as Mr Powell might drop clues about potential changes to monetary policy.
EUR/USD – has fallen back into the wider downtrend and a move back below 1.1200 might pave the way for the 1.1110 area to be retested. 1.1400 might act as resistance.
GBP/USD – has been driving lower since mid-March, and if the bearish move continues it might encounter support at 1.2365 region. The 1.2800 area might act as resistance.
EUR/GBP – has rebounded for over one month, and if it holds above 0.8800, it might bring 0.9000 into play. A move to the downside might bring the 200-day moving average at 0.8783 into play.
USD/JPY – has been in a down trend since late April, and if the bearish move continues it might target the 106.00 mark. Resistance might be found at the 50-day moving average at 109.02.
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