If markets were expecting a clearer idea as to what the Fed might do later this month in the wake of Friday’s US payrolls numbers, they came away disappointed. The headline jobs number was disappointing, coming in well below expectations at 173k, while private payrolls came in even weaker. The hawks on the other hand had the bigger than expected rise in average earnings and a slide in the unemployment rate to 5.1%, as well as a an upward revision of 44k to the June and July numbers which on balance had markets betting that the Federal Reserve could well nudge rates higher later this month. This interpretation no doubt accounted for the weak finish for equity markets across the board at the end of last week, while concerns about weaker Chinese growth continued to weigh on the upside, though the long weekend in the US may well have been a factor as well. With Chinese markets returning from their short break this week attention will once again turn to the latest economic data and this week’s latest trade numbers for August. If we cast our minds back a few weeks ago it was the weak July export data to Europe and Japan that prompted the recent move in the trading band of the yuan against the US dollar, and precipitated the current bout of stock market turbulence. With G20 finance ministers endorsing China’s recent policy moves over the weekend in a rare show of unity, albeit with dissent from Japan after a string of meetings in Ankara, there is a hope that the July weakness was a one off, and a decent August China trade number could settle things down. Unfortunately markets are unlikely to be as sanguine particularly given continued uncertainty over what the Fed might do at next week’s policy meeting, though the US central bank is consistently being warned about being too hasty with the IMF reiterating its earlier warning about raising rates in September again at the weekend, against a backdrop of warnings about a slowdown in the global economy. Ultimately the decision to hike rates this month may not be down to the data at all, but concern about what a rate rise may do to financial stability of global markets, which if the events of the past few weeks are any guide, could be the shape of things to come for the next few days. EURUSD – currently finding support down near the 50 and 100 day MA’s at 1.1080, the risk of a move toward 1.0820 increases in a move below last week’s low. While above the 1.1080 level the risk remains for a return towards the 1.1400 level if it regains a foothold above the 200 day MA at 1.1280. GBPUSD – nine successive daily declines has the pound has drop back to the June lows at 1.5170 and needs to hold above the May lows at 1.5085 to argue for a return to the 1.5340 level. A move below 1.5080 argues for a move back to the 1.4800 area. EURGBP – while below the 200 day MA despite a Friday rebound the risk remains for a move back towards the 0.7230 level while below 0.7380. Only above 0.7400 argues for a move towards the May highs at 0.7485. USDJPY – having peaked at 121.75 last week and back below the 200 day MA at 120.75 the US dollar looks vulnerable to a return to the 116.20 area seen a couple of weeks ago. CMC Markets is an execution only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.
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