Intraday Market Thoughts Archives

The US dollar slid into the non-farm payrolls as fears about a less-healthy US economy continued to percolate. The euro hit a four-week high and commodity currencies climbed. We take a closer look at the stakes ahead of the jobs report and THE OTHER key Friday release.

Wednesday's big ADP miss sparked jitters that continues Thursday and a slump in the US dollar. Some are also citing Homebase hiring data showing a drop in August for forecasts that non-farm payrolls could be 300-400K – far below the 750K consensus.

Others point to a surge in hiring intentions in the National Federation for Independent Business sentiment survey.

One usually solid NFP preview won't be delivered in time this month. The ISM services employment component often offers clues but it will be released 90 minutes after the jobs report. Even with the late release, it will serve as an important confirmation point and another look at the US economy.

In terms of trading strategy, a soft non-farm payrolls would disrupt chances of a taper signal at the Sept FOMC. The problem beyond that is there is no October Fed meeting and the November 2 Fed decision comes before the Nov 5 release of the October jobs report. So if today's NFP is soft, the Fed will only get one more number before the November FOMC, meaning there's a good chance at soft reading would rule out a Sept taper hint and a November taper announcement, pushing it all the way to December.

In addition, the signs of weakness in the US economy are mounting. The Atlanta Fed GDP tracker tumbled to 3.7% from 5.3% on Thursday. Morgan Stanley also slashed its Q3 GDP forecast to 2.9% from 5.3% and, importantly, didn't see any give-back in Q4. A key catalyst for both is that bottlenecks are leading to production slowdowns along with weaker sales to consumers, particularly in autos.

Add in generally crowded US dollar longs and there's a risk of a squeeze on Friday. At the same time, we suspect the dollar slide in the past two days has been position squaring. A +1m jobs report would reinvigorate Sept taper talk and the dollar. Ashraf sees EURUSD near 1.2050 in the short-term.

DXY is posting its 5th consecutive daily decline, the longest string of losses since April. Thursday's release of weekly jobless showed a slight decline as expected, but it was Wednesday's poor ADP employment report and hawkish ECB comments in response to upside surprise in Ezone CPI that helped accelerate USD selling. ADP does have a spotty record but the soft August reading adds to the mounting evidence that the US economy isn't as strong as believed.  More on the gas sector below. The NASDAQ charts below suggest a short-term trading opportunity in NASDAQ100 based on 4 prior cases. We let the charts speak for themselves. 

The ADP employment report showed the US adding just 374K jobs in August compared to 640K expected. That was compounded by the employment component of the ISM manufacturing report falling below 50.

The pandemic-era history of the ADP report and the small size of manufacturing employment in the US make both metrics questionable but they underscored the market's focus on jobs at the moment. The dollar fell 30-40 pips across the board on the data in only a small preview of the decline should non-farm payrolls match the miss.

Another spot to watch is the weekly US natural gas storage report, which is expected to show a build of 20 bcf. Last week's surprise miss helped to send gas prices into high gear in the US and into overdrive in Europe and Asia. The base case for global central banks is that the flattening of energy prices flattens out inflation but natural gas – which is critical in home heating and energy generation – could add another front to watch on prices; and one that could present a big headache for politicians and central bankers. Moreover, this is not traditionally the peak of natural gas prices for the year with every recent seasonal spike coming in the cold months. So expect to hear much more about NG and LNG in the months ahead.

As we anticipated, US consumer confidence badly missed expectations on Tuesday to raise new questions about the underlying strength of the recovery. Despite that, the dollar pared earlier losses as month-end flows played into the mix. Higher than expected Eurozone CPI did not go unnoticed by bund traders. Wednesday's highlights include US ADP report and ISM manufacturing. Ashraf posted a video today of the live market reaction to the miss in consumer confidence as alerted in yesterday's video.  Ashraf shared this tweet below and will fill in his WhatsApp BG with this details tomorrow.  

US consumer confidence fell to the lowest since February on Tuesday in a move that surprised economists and some market participants but not us. As we highlighted on Monday, drops in the index are highly correlated with the University of Michigan survey and that's precisely what happened. Confidence fell to 113.8 from 129.1; much lower than the 124.0 consensus.

The miss weighed on the dollar initially but month-end flows led to broad USD buying into the London fix.

In the days ahead, fixing demand will be long gone but questions about the consumer are only beginning. The assumption rate coming out of the pandemic was that a high savings rate and healthy consumer balance sheets would lead to a spending spree but higher prices due to bottlenecks are keeping people from buying cars and now covid is crimping demand again.

That paradigm could materially slow H2 growth and keep the Fed off balance. At some point it will weigh more heavily on the dollar but the timing on that trade is elusive.

For now, the market is focused on employment and inflation. We'll get two inputs on that Wednesday with the release of ADP employment and ISM manufacturing. The current focus on jobs will make ADP the highlight (despite its flaws) but the prices paid component of the manufacturing survey could also resonate.

How XAUUSD and EURUSD reacted to Consumer Confidence Video

ردة فعل أثناء اصدار بيان ثقة المستهلكين

The London holiday led to a sluggish start to the week in FX as equities and bonds continued on their post-Powell paths. Since the close of NY trade yesterday, NZD and CHF are the strongest with Kiwi powered by a gradual reopening outside the Aukland. CAD and JPY are the weakest. Gold is showing higher lows, ensuring to remain above the 100 and 200 DMAs. EURUSD eyeing 1.1895 as long as it sustains the break above 55-DMA. Today's consumer confidence report offers a compelling opportunity (Ashraf's video offers the how & why on the opportunity to trade the upcoming consumer confidence report below). 

Monday's trade mostly featured consolidation with most currencies largely unchanged. A large and persistent bid entered into EUR/CHF at the start of European trading in what was likely the SNB taking advantage of less liquidity to push the price higher.

Fundamentally, the US pending home sales and Dallas Fed manufacturing reports both missed estimates. The comments in the Dallas report were notable for a shift away from labor shortages and towards more worry about supply chain bottlenecks and raw materials shortages.

In the bigger picture, there's a growing pattern of soft US economic data that the market is reluctant to recognize. We're likely to get another example on Tuesday in the 1400 GMT release of US consumer confidence.

While the Fed is focused on inflation and jobs, it's the consumer that drives the US economy and recent indications show softness. Moreover, mobility data and airline bookings are showing stalled pandemic progress or weakness. With the eviction moratorium over and jobless benefits expiring this week, is the market and Fed focused on the wrong thing?

Ashraf's video offers a compelling setup in what could be a wake-up call for the market. WIll he be right? Let's see/watch.

In less than 1 hr from now !! Are expectations misaligned for a trading opportunity ? FULL VIDEO هل هناك فرصة إستغلال ثغرة في توقعات السوق؟في اقل من ساعة من الآن 

 

Fed Chair Jerome Powell offered no signal on the timing of the taper at Jackson Hole and that left the market more confident that a September move was coming. But it was the way Powell and other Fed speakers began to shape the taper message in a new way. Gold had its 2nd biggest weekly gain of the year and the US dollar fell across the board after the speech, while risk trades soared. US pending home sales top the economic calendar to start a busy week. Ashraf's latest Youtube video identifies the 2 new ways the Fed is shaping the taper message, while addressing the latest signals from the Gold/Silver ratio (see detailed chapter description below)

A series of Fed speakers ahead of Powell highlighted various cases for tapering soon and at varying paces, but the Chair offered little. He said that at the most-recent FOMC meeting on July 27-28 he was of the view that the taper should start this year. Since then, he noted there was a strong jobs report but also the further spread of the delta variant. Without expanding on the relative weight of either of those factors, he said they will be carefully assessing incoming data.

The message the market took from that is to keep a close eye on economic data – especially this Friday's non-farm payrolls report --- but that even a strong report wouldn't lead to a Sept taper announcement.

The US dollar slumped 40-80 pips across the board, with the heaviest losses against the commodity currencies as US equities rallied 0.9% to fresh records.

The market now will shift to a hyper-focus on a Nov or Dec taper (there is no Oct meeting) but a one month difference is negligible in the larger scheme. What's longer-lasting is that Powell and the FOMC are in no reason to hike. He again highlighted that inflation should be transitory, noting that durable goods and energy together have added 1.8 pp to year-over-year inflation – factors that should level off or contribute disinflation later.

For the week ahead, it's a busy one leading up to non-farm payrolls but starts with a quiet US calendar featuring only pending home sales at 1400 GMT.