Week Ahead: Markets Brace for NFP

Weekly Recap

The main story this week was the heavy volatility we saw in the US Dollar. The greenback started the week on a soft footing following worrying comments from Fed chairman Powell at the end of the prior week regarding the potential for a recession later this year.

However, into the middle of the week, the Dollar was seen reversing this initial weakness and rallying to fresh weekly highs in response to contrary comments from Powell. On Thursday, however, the Dollar fell heavily as May Core PCE data undershot expectations, once again raising the prospect of a recession. 

Equities markets bore the brunt of this volatility with stock prices yo-yoing across the week. Broadly speaking, however, it was a bearish week for asset prices. Headlines included Germany’s DAX breaking down to its lowest level since March, close to testing YTD lows and Australia’s ASX heading back down towards yearly lows also. Risk sentiment is currently being dragged down by recessionary fears and tightening monetary policy. 

In FX, the Swiss Franc has been the strongest performing currency of the week, bolstered by the SNB’s recent surprise rate hike and emboldened safe-haven flows amidst the current wave of risk aversion.  Despite the drop in risk assets this week, the Japanese Yen was the weakest performing currency.

Like other central banks in the G10 turn aggressively more hawkish, JPY has lost appeal and has been particularly hurt by fresh strength in the US Dollar. 

In the commodities space, gold and silver prices both traded lower this week on hawkish signals from the Fed. Price action in both metals has been lacklustre over recent months but this week the downward trend saw silver prices breaking down to fresh 2022 lows with gold challenging key support also. 

Oil prices dropped sharply this week in response to news from OPEC that it will increase oil production to roughly 650k barrels per day over July and August. At this level, the group will bring forward the unwinding of its pandemic-era production cuts by one month. OPEC cited concerns about global oil supply tightness as the reason for the move. 

Coming Up This Week

  • CHF Swiss CPI

The first key data focus this week will be the latest Swiss CPI release. On the back of the unexpected SNB rate hike last month and additional hawkish signalling, traders will now be looking to this week’s CPI data to essentially confirm or deny a further hike at the next meeting. The bank noted its concern over inflation and willingness to do more if needed.

With this in mind, CHF is likely to trade higher on a strong reading as traders brace for further tightening and vice versa if the data undershoots expectations. 

  • AUD RBA Rate Decision

The RBA caught the market somewhat off-guard last time around, raising rates by 0.4% and therefore overshooting expectations for a quarter-point move. The bank was decidedly hawkish in its outlook at the last meeting and, with this in mind, traders are looking for the bank to press ahead with further tightening this time around, this time looking for a half-point move. 

  • USD US NFP, Unemployment Rate & Average Earnings

The headline act of the week comes on Friday in the form of the latest set of US labour market indicators. With plenty of speculation and debate currently over the trajectory of the US economy and the prospect of recession later in the year, traders will be eyeing Friday’s data with caution.

Last time around we saw the headline NFP figure beating expectations with both the unemployment rate and earnings data remaining unchanged. This time around the forecast is for the NFP to come in much lower at around 290k with any surprises on this, or the other indicators, certain to cause plenty of volatility. 

Forex Heat Map 

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Technical Analysis

Our favourite technical chart of the week – GBPCHF

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This week we revisit a chart we posted a few weeks ago to update it. GBPCHF broke down below the 1.2114 level, as signalled, and the market has extended sharply lower. 

Price is currently testing below the 1.1687 support level. This is a key area for the market and a sustained breach of this level will put 1.1139 in view as the next target for bears. 

Should the price end up reclaiming the level, however, we will likely see a rotation higher where traders should monitor a retest of the 1.2114 level, expecting the area to hold as resistance to turn the price lower again. Only a break back above there will negate the long-term bearish view. 

Economic Calendar

Plenty to keep an eye on this week data-wise, with Swiss CPI, the RBA rate decision for July and the latest set of US labour reports all due alongside a host of other events. See the calendar below for the full schedule. 

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Disclaimer: This article is not investment advice or an investment recommendation and should not be considered as such. The information above is not an invitation to trade and it does not guarantee or predict future performance. The investor is solely responsible for the risk of their decisions. The analysis and commentary presented do not include any consideration of your personal investment objectives, financial circumstances, or needs.

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