Markets Weighed by Strong U.S. Labor Data and Geopolitical Tensions (10.03.2024)

The EUR/USD pair experienced selling pressure, dropping to a three-week low as investors reassessed their expectations for Fed rate cuts following strong U.S. labor market data and hawkish comments from Fed Chair Powell. Meanwhile, the euro is under pressure due to falling inflation in the Eurozone and increasing speculation that the ECB may lower rates.

In contrast, the yen weakened to a one-month low against the dollar as Japanese officials signaled caution on further rate hikes, while stronger-than-expected U.S. job data supported the dollar. Gold remained near record highs, benefiting from safe-haven demand amid rising Middle East tensions, though stronger U.S. labor data limited gains. The British pound continued to decline amid safe-haven flows and cautious BoE policy, while silver pulled back after strong U.S. labor data raised expectations for another Fed rate cut. Geopolitical risks in the Middle East, however, limited the downside for precious metals.

EUR/USD Under Pressure as Fed Signals Fewer Rate Cuts, Eurozone Inflation Falls

The EUR/USD pair saw selling pressure for the fifth consecutive day, dropping to the lowest point in three weeks around 1.1030 during the Asian session on Thursday. This trend follows a positive US JOLTS Job Openings survey and a surprising ADP report from Wednesday, which highlighted the resilience of the labor market. Fed Chair Jerome Powell's hawkish remarks earlier this week led investors to reduce expectations for a significant rate cut at the upcoming November FOMC meeting. Additionally, escalating tensions in the Middle East have strengthened the safe haven USD, contributing to its recovery from the lowest levels since July 2023. This situation continues to weigh on the EUR/USD pair. The euro is further pressured by rising expectations that the European Central Bank (ECB) may lower interest rates in October, especially after inflation in the Eurozone fell to 1.8% in September, below the 2% target. ECB Governing Council member Martins Kazaks emphasized the growing economic risks, reinforcing the need for cautious monetary policy. This context adds to the downward momentum in the EUR/USD pair, supporting the likelihood of a continued pullback from its 19-month peak.

In the pair, the first support level is at 1.1000. If this level is breached, the next supports to watch will be 1.0970 and 1.0940. On the upside, the first resistance is at 1.1050; if this level is surpassed, the next targets will be 1.1080 and 1.1100.

Yen Weakens to 147 per Dollar Amid Mixed Signals on BOJ Rate Policy

On Thursday, the Japanese yen fell to about 147 per dollar, marking the lowest point in one month, as Prime Minister Shigeru Ishiba indicated that further rate hikes were premature following discussions with Bank of Japan Governor Kazuo Ueda. He emphasized that the current economic conditions do not necessitate additional increases, leading markets to adjust their expectations for the next BOJ rate hike. The new economy minister echoed this caution, urging the central bank to be wary of raising rates again. Meanwhile, data showed that Japan's business activity remained in expansion for the eighth consecutive month in September, driven by strong demand. The yen's decline against the dollar was also influenced by stronger US private employment figures, reinforcing the notion that the Federal Reserve may not need to significantly cut interest rates.

From a technical perspective, the first resistance level is at 147.00. If this level is surpassed, the next targets will be 148.10 and 148.60. On the downside, the initial support is at 146.40; if this level is breached, the next supports to watch will be 145.30 and 144.60.

Gold Holds Near Record Highs as Middle East Tensions Escalate

On Thursday, gold was priced around $2,655 per ounce, staying near record highs amid escalating tensions in the Middle East, which boosted its appeal as a safe haven. Iran's missile attack on Israel prompted increased Israeli military action and threats of retaliation. However, strong US labor data this week limited gold’s gains, as it suggests the Federal Reserve may not need to pursue a more accommodative monetary policy. The ADP report showed more private-sector jobs created in September than expected, reinforcing a stronger labor market than anticipated at the start of Q3. Currently, markets estimate a 66% likelihood that the Fed will implement a modest 25 basis point rate cut in November, which could lower the opportunity cost of holding gold, a non-interest-bearing asset.

Technically the first support level is at 2,650. If this level is breached, the next supports to watch will be 2,630 and 2,600. On the upside, the initial resistance is at 2,665; if this level is surpassed, the next targets will be 2,685 and 2,700.

GBP/USD Extends Losses Amid Safe Haven Flows and BoE Caution

The GBP/USD pair extended its losses for the third consecutive day, trading around 1.3200 during the Asian session on Thursday, as safe haven flows amid rising Middle East tensions exert downward pressure. The Bank of England (BoE) has been promoting a cautious approach to rate cuts, given persistent inflation in the services sector and strong economic growth. In its quarterly statement, the BoE's Financial Policy Committee noted that risks to UK financial stability have remained largely unchanged since June. BoE policymaker Megan Greene cautioned that a consumption-driven recovery could lead to renewed inflation, although she acknowledged that further rate cuts are likely, as prices are moving in the right direction.

For GBP/USD, the initial support lies at 1.3170, followed by 1.3110 and 1.3070 below. On the upside, the first resistance is at 1.3220, with subsequent levels at 1.3250 and 1.3300 if the pair breaks above this resistance.

Silver Pulls Back as US Job Growth Boosts Fed Rate Cut Expectations

Silver prices (XAG/USD) have retraced gains from the previous two sessions, trading around $31.60 per troy ounce during the Asian hours on Thursday. This decline can be linked to strong US labor data, which heightens the likelihood of the Federal Reserve (Fed) implementing another significant rate cut in November. Lower interest rates make non-yielding assets like silver more attractive to investors by reducing the opportunity cost. The ADP US Employment Change reported an addition of 143,000 jobs in September, surpassing expectations of 120,000, with annual pay rising by 4.7%. The August job figures were also revised upwards from 99,000 to 103,000, indicating a stronger labor market than initially thought at the beginning of Q3. Federal Reserve Bank of Richmond President Tom Barkin commented on the Fed's recent rate decisions, cautioning that the battle against inflation may not be over, as ongoing risks remain. He justified the 50 basis point cut in September, stating that rates had become "out of sync" with declining inflation while unemployment remained near sustainable levels. Despite this, the downside for safe-haven assets like silver may be limited due to escalating geopolitical tensions in the Middle East. The Israeli Broadcasting Authority (IBA) reported that Israel's security cabinet plans a strong response to a recent Iranian attack, during which Iran launched over 200 ballistic missiles and drone strikes against Israel.

From a technical perspective, the first resistance level to watch is at 31.80. If silver breaks above this level, the next resistance levels to watch will be 32.10 and 32.70, respectively. On the downside, the initial support level is at 31.50, with subsequent support levels at 31.20 and 30.60.