This week, the US released a series of employment data. The US dollar weakened and US Treasury bond yields fell, which may reinforce the view that the Federal Reserve will continue to cut interest rates this year.
The US dollar index dropped 0.2% on Monday, marking the second consecutive day of decline. The looming risk of a US government shutdown also dampened market sentiment, as the temporary suspension of government services would delay the release of economic data including the non-farm payroll figures on Friday, adding to the uncertainty over the outlook for interest rate cuts.
The US dollar reversed last week’s gains, when data showed only mild inflationary pressure in the United States, prompting traders to lower expectations for a rate cut in October and pushing up yields on US Treasuries. With the focus this week shifting to the labor market, any further signs of a slowdown in employment will strengthen the case for further easing.
Chris Turner, head of foreign exchange strategy at ING Bank NV in London, wrote in a report: “Since the Federal Reserve has firmly denied that the risk of a weak job market is greater than that of inflation, the job data must show weakness in order to maintain expectations of the Fed’s loose policy and a weaker dollar.”
The yield on two-year US Treasuries dropped 2 basis points to 3.62%, below the 3.67% reached last Friday, which was the highest level since September 2. This week, bond investors’ focus is on whether the latest employment data will strengthen market confidence that the Federal Reserve will further cut interest rates. Previously, last week’s US economic growth and inflation data slightly shook market expectations of consecutive rate cuts by the Federal Reserve.
Federal Reserve Chair Jerome Powell reaffirmed his view that policymakers’ path ahead could be challenging due to risks to the labor market and inflation outlook, which led to a pullback in bets on policy easing. Swap transactions suggest that there is about an 80% chance of a rate cut by the Fed next month, followed by another cut in December.
The dollar suffered the biggest hit against the yen, falling as much as 0.7% to 148.47, as remarks by one of the Bank of Japan’s most dovish policy board members that the case for a rate hike was growing stronger stoked speculation of a possible increase next month. The yen could rise further if Japan’s ruling party selects a new leader on Saturday who is more supportive of tighter monetary policy.
The two-week rally of the US dollar has faded, and the options market suggests that its latest rise may have been a short squeeze rather than a shift in the dollar’s long-term trend.
The so-called risk-reversal indicator, a barometer of market positioning and sentiment, suggests that while traders expect the dollar to rise further in the near term, the demand for protection against an upside move remains limited. Data from the Depository Trust & Clearing Corporation shows that even during last week’s rally, options reflecting the risk of further dollar strength only marginally exceeded those of their counterparts.
Technical analysis:
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Gold: The price has firmly established itself above 3800 and has now tested and broken through the 3850 level. The trend maintains a relatively clear upward characteristic, and the short-term momentum is also quite strong. It is suggested that if there are further breakthrough signals at the high level, a short-term long position can be attempted with a 1:1 risk-reward ratio. Additionally, keep the option of going long after the liquidity of the low sweep is maintained, and pay attention to the periodical low points around 3810-3820. For detailed positions, please consult the plugin.
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The Nasdaq index: After sweeping through the liquidity at 24,300/24,400, it has rebounded to around 24,600. For today, we continue to maintain the strategy of buying at the low after sweeping through the liquidity. We suggest paying attention to the buying opportunity near 24,400 today, and you can try 1-2 times. For detailed positions, please consult the plugin.
(NASDAQ 15-minute chart)
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Crude oil: Yesterday, we attempted to defend long positions around 63.50, but failed. Today, we will shift our focus to the 61.80 level. If there are signs of stabilization, we will try to make 1-2 buy attempts. For detailed positions, please consult the plugin.
(Crude Oil 15-Minute Chart)
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Today’s key economic data and events to focus on:
22:00 U.S. August JOLTs Job Openings (in 10,000s)
22:00 US Conference Board Consumer Confidence Index for September