Weak US Jobs Report Influences Major Pairs and Commodities (08.05.2024)

Today's analysis covers key developments in major forex pairs and commodities, focusing on the impact of a weak US jobs report and subsequent market expectations for rate cuts by the Federal Reserve. The EUR/USD pair hit a 20-week low, driven by heightened recession fears and expectation of significant Fed rate cuts. USD/JPY strengthened on expectations of further rate hikes by the Bank of Japan, contrasting with anticipated Fed cuts. Gold prices pulled back from record highs as investors took profits amidst ongoing Mideast tensions. Lastly, we analyze key support and resistance levels for GBP/USD.

EUR/USD Hits 20-Week Low on Weak US Jobs Report

The dollar index fell to around 103 on Monday, marking its lowest point in 20 weeks. This decline followed a weak US jobs report, which heightened concerns about a possible recession and reinforced expectations for substantial rate cuts from the Federal Reserve. Data released on Friday revealed that the US economy added only 114,000 jobs in July, significantly below market expectations of a 175,000 increase. Additionally, the unemployment rate unexpectedly surged to a 2021-high of 4.3%, while wage growth slowed more than anticipated. Markets are now pricing in over a 70% chance of a 50 basis point rate cut by the Fed in September, with approximately 155 basis points of total easing expected for this year and next. In light of these developments, the EUR/USD pair started the week on a very positive note, maintaining the momentum from Friday's drop.

In the pair, the first support level is at 1.0900. If this level is breached, the next supports to watch will be 1.0850 and 1.0800. On the upside, the first resistance is at 1.0950; if this level is surpassed, the next targets will be 1.1000 and 1.1050.

USD/JPY Strengthens with BoJ Rate Hikes Expectations

The Japanese yen strengthened toward 142 per dollar, reaching its highest levels since early January, driven by expectations that the Bank of Japan (BoJ) will raise interest rates further in the coming months, while the US Federal Reserve is likely to cut rates. These expectations followed a weak jobs report that raised fears of a recession in the US, leading markets to price in a larger 50 basis point Fed rate cut for September. Last week, the BoJ raised its policy rate to 0.25% and indicated a willingness to increase rates further if the economy remains strong. Markets are expecting two more rate hikes this fiscal year, which ends in March 2025, with the next increase expected in December. Additionally, the central bank announced plans to halve its monthly bond purchases over the next couple of years. In other news, data revealed that Japanese authorities spent 5.53 trillion yen to support the currency through intervention in July.

The first resistance level is at 144.60. If this level is surpassed, the next targets will be 146.00 and 147.00. On the downside, the initial support is at 141.70; if this level is breached, the next support to watch will be 140.00 and 139.00.

Gold Pulls Back from Record High

Gold dropped to around $2,430 per ounce on Monday, reversing earlier gains and pulling back from last week’s record highs as investors took profits. On Friday, the US economy added a net 114,000 jobs in July, falling short of the market expectation of a 175,000 increase. Additionally, the unemployment rate unexpectedly rose to its highest level since 2021, and wage growth slowed more than anticipated. This followed weak manufacturing data, with the ISM Manufacturing PMI showing a larger-than-expected contraction in factory activity, raising fears of a potential US recession. As a result, expectations for a dovish shift by the Federal Reserve increased, with markets now pricing in over a 70% chance of a 50 basis point rate cut in September and about 155 basis points of total easing anticipated for this year and next. Meanwhile, ongoing tensions in the Middle East continue to support demand for safe-haven assets like gold.

Before the important data releases, gold remains in a sideways trend, with the first support level at 2,435. If this level is breached, the next supports to watch will be 2,413 and 2,390. On the upside, the initial resistance is at 2,475; if this level is surpassed, the next targets will be 2,500 and 2,550.

GBP/USD Key Support Stands at 1.2735

For GBP/USD, the initial support lies at 1.2735, followed by 1.2660 and 1.2600 below. On the upside, the first resistance is at 1.2830, with subsequent levels at 1.2870 and 1.2930 if the pair breaks above this resistance.