Market participants await the latest US employment data to determine how the Federal Reserve will alter its policy. According to the San Francisco Fed President, Mrs. Daly, a rate hike may not be necessary if the employment sector shows a slowdown. According to Mrs. Daly, if bond yields remain this high, the central bank may not be required to raise interest rates again but hold in the longer term. However, this will largely depend on the employment data, and if the employment data reads higher than expectations, bond yields are again likely to rise and pressure the stock market.
All three of the leading US indices ended the day lower and would have witnessed a poor session if the price did not retrace towards the end of the session. By the end of the day, US indices honored the set price range, as said in yesterday’s market analysis. The NASDAQ saw the most significant decline, falling 0.36%, the Dow Jones losing 0.05%, and the SNP500 0.13%. European indices are trading slightly lower during this morning’s Asian session but are improving as the cash open nears. Global institutions may potentially be avoiding US-based assets and opting for EU equities due to the upcoming Non-Farm Payroll data. However, the US employment data will influence both European and UK equities.
Currency Market
The best-performing currency of the day is the US Dollar, which is increasing in value against all currencies. The US Dollar Index is trading at 106.51 which is 0.17% higher than the open price. However, technical analysts are pointing to the sharp decline in the Dollar since the European Cash Open. The performance of the US Dollar will largely depend on this afternoon’s US employment data. The Dollar is likely to rise if the Average Hourly Earnings and NFP data read higher than expectations. Investors will also be monitoring the Unemployment Rate. Economists advise that the Unemployment Rate will have to rise to 4% to worry the Federal Reserve.
The worst-performing currency of the day was, once again, the Japanese Yen, which is decreasing against all other currencies. The USD/JPY is trading at a 49-week high but at the previous collapse point. Unlike their US counterparts, the Bank of Japan is in no hurry to adjust the current ultra-soft monetary policy despite a significant increase in inflation, so it is expected that the yen will remain under severe pressure until the first half of next year. Japanese inflation is currently stable at 3.20%, above the central bank’s target.
Dow Jones
The Dow Jones has been performing better than the SNP500 and the NASDAQ due to its exposure to defensive stocks. Nonetheless, the value has honored the established price range from the past three days. As mentioned on Wednesday, the price range will likely be kept until the employment data is released this afternoon. Traders should also note that this afternoon’s data is influential and significant, but next week’s Consumer Price Index will be the most crucial announcement. Once the Consumer Price Index is publicly available, investors will turn to the banking sector’s quarterly earnings reports.
At the opening of the US trading session, Dow Jones witnessed an apparent decline, with seller orders outnumbering buyers. However, the price saw a correction in the second half of the session. By the end of the session, the Dow Jones kept to the price range and continued to honor the resistance level at $33,163.60. If the price breaks above this level, technical analysts will consider the momentum as a signal to buy, but simultaneously expect a retracement back to the breakout point in the short term. The price action and strength of the movement will depend on how far the NFP figure is from expectations. Analysts expect Non-Farm Payroll to read only 170,000; if the price reads over 200,000 or under 150,000, price movement may be more substantial than a slight difference.
Dow Jones 30-Minute Chart on October 6th
The current expected figures have both positives and negatives for the Dow Jones. The NFP data is believed to decline from 187,000 to 170,000, which is positive for the Dow but not enough to trigger a significant bullish trend. However, the decline in the Unemployment rate and rise in the Average Hourly Earnings is negative. If the data reads similar to the market’s expectations, the price is likely to remain close to the price range. This is due to the price declining more than 7% since recent highs.
Furthermore, a recent positive note came from the San Francisco Head, Mrs. Daly, who advises the Central Bank may not need to increase the rate if bond yields remain high. Investors deem this a dovish indication, but Mrs. Daly suggests this is only possible if the employment sector cools. Dovish comments from Federal Open Market Committee members can support the Dow Jones; however, the high bond yields continue to limit the market’s “Bulls”. Another positive factor for the US equities is the slight “risk on” sentiment in Europe this morning. Lastly, another positive factor is the decline in the price of Oil. If the price of Oil continues to decline, it can take the sting out of inflation and support equities.
EUR/USD
The Euro US Dollar exchange rate has risen over the past three days, returning the price to the previous breakout point. When looking at price action and price momentum, indications are pointing upwards. However, the price is also at the prior breakout point which can trigger another decline. The outcome will most likely depend on today’s Non-Farm Payroll. However, if the Federal Open Market Committee continues giving weaker indications, the Dollar can decline.
Regarding Fundamentals, the Euro is not necessarily being supported by anything specific. Yesterday, European Central Bank Governing Council member Mr. Centeno advised that the long-term rate increase has probably ended since their current level allows the inflation to return to the bank’s target of 2% in the medium term. The ECB policymaker Mr. Kazimir expressed a similar position today, noting that last month’s rate hike was probably “the last”. Nonetheless, the Euro is increasing in value against all currencies bar the Swiss Franc.
EUR/USD 1-Hour Chart on October 6th
Summary:
- US indices and stocks decline as the US employment data edges nearer. 14 of the 30 stocks within the Dow Jones ended the day higher. However, the stock market performance will depend on the upcoming NFP data.
- The best-performing currency of the day is the US Dollar, which is increasing in value against all currencies. The US Dollar Index is trading at 106.51 which is 0.17% higher than the open price.
- ECB member Mr. Centeno advised that rate increases have probably ended since inflation is likely to return to its target in the medium term.
- FOMC Member, Mrs. Daly, is advising it may not be necessary to for the Fed to hike again if bond yields remain high.
