Wall Street Capitulate on Soft NFP Reading

❖    Softer-than-expected NFP reading deteriorates risk appetite in the market and hammers Wall Street.

❖    Gold prices declined on the strengthening U.S. dollar as the market perceived a 50 bps rate cut less likely.

❖    BTC dropped to a one-month low as risk appetite in the wider market affected the sentiment in the crypto market.

Market Summary

The financial markets were shaken by the release of key U.S. economic indicators last Friday, triggering heightened volatility across sectors. The Nonfarm Payrolls (NFP) came in significantly lower than expected at 142k, indicating a slowdown in U.S. economic growth. This weighed heavily on Wall Street, with the Nasdaq dropping more than 2.5%. The dollar index (DXY) also fluctuated by over 80 pips following the jobs report but stabilised as the market digested the data. While the NFP was weak, the marginal improvement in the unemployment rate and better-than-expected wage growth tempered expectations of a rate cut larger than 25 bps.

In the commodities market, gold faced strong selling pressure, getting rejected at its all-time high near $2,530.

Looking ahead, traders should keep an eye on Tuesday's UK unemployment rate and Wednesday's U.S. CPI reading, which are likely to influence movements in the Pound Sterling and the U.S. dollar, respectively.

Current rate hike bets on 18th September Fed interest rate decision:

Source: CME Fedwatch Tool

-50 bps (32.5%) VS -25 bps (67.5%)

Market Movements

DOLLAR_INDX, H4

The Dollar Index experienced significant fluctuations last week after mixed results from the US jobs report. Nonfarm Payrolls came in weaker-than-expected at 142K, below the forecast of 164K. However, Average Hourly Earnings unexpectedly rose to 0.40%, surpassing expectations of 0.30%. This combination left investors uncertain about the US economic outlook, with attention now shifting to the Fed’s upcoming decision on whether to implement a 25 or 50 basis points rate cut.

The Dollar Index is trading higher following the prior rebound from the support level. MACD has illustrated increasing bullish momentum, while RSI is at 50, suggesting the index might extend its gains since the RSI rebounded sharply from oversold territory.

Resistance level: 101.70, 102.35

Support level: 100.55, 99.70

XAU/USD, H4

Gold prices initially surged following the downbeat Nonfarm Payrolls report as investors sought safe-haven assets. However, after reaching a crucial resistance level, profit-taking caused gold to pull back. With US Average Hourly Earnings and unemployment rates in line with expectations, mixed sentiment continues to dominate the market. Investors are likely to wait for the Fed's monetary policy decision for clearer direction.

Gold prices are trading lower following the prior retracement from the resistance level. MACD has illustrated increasing bearish momentum, while RSI is at 45, suggesting the commodity might extend its losses since the RSI stays below the midline.

Resistance level: 2505.00, 2525.00

Support level: 2480.00, 2450.00

GBP/USD，H4

The GBP/USD pair has formed a bearish engulfing candlestick pattern following a technical rebound, signalling a potential trend reversal. Last Friday's mixed U.S. job data added complexity to the market's outlook. While the Nonfarm Payrolls (NFP) came in softer than expected, improvements in the unemployment rate and wage growth led to expectations of a smaller, 25 bps rate cut from the Fed, boosting the U.S. dollar's strength. On the other hand, traders should keep a close watch on Tuesday's UK unemployment rate, which will be a key indicator for assessing the strength of the Pound Sterling.

GBP/USD has once again dropped below its fair value gap, suggesting a bearish bias for the pair. The RSI has declined to below 50 level while the MACD hovering closely to the zero line suggests the bearish momentum remains intact with the pair.

Resistance level: 1.3220, 1.3280

Support level:1.3065, 1.2980

EUR/USD，H4

The EUR/USD pair has failed to break above its downtrend resistance, indicating a bearish bias. The pair fluctuated by nearly 80 pips following the release of last Friday's U.S. economic data, which strengthened the U.S. dollar and applied downside pressure on the euro. The mixed U.S. The Nonfarm Payroll report, coupled with better-than-expected wage growth and unemployment rate improvements, bolstered the dollar. Euro traders should keep a close watch on the European Central Bank (ECB) interest rate decision set for Thursday, as it could significantly influence the pair's direction.

EUR/USD was kept below the downtrend resistance level, suggesting the pair remains trading within its downtrend trajectory. The RSI failed to break into the overbought zone, while the MACD hovered closely to the zero line, which gave a neutral signal for the pair.

Resistance level: 1.1110, 1.1170

Support level: 1.1040, 1.0985

NASDAQ, H4

US equity markets had a tough week, with the S&P 500 dropping 1.7% and the Nasdaq 100 falling 2.7%. Weaker-than-expected payroll data heightened concerns over the economic outlook. Treasury two-year yields fell as much as 15 basis points before stabilizing. Market expectations for a half-point Fed rate cut also waned after brief momentum sparked by Fed Governor Christopher Waller’s openness to the idea.

Nasdaq is trading lower following the prior breakout below the previous support level. MACD has illustrated increasing bearish momentum. However, RSI is at 31, suggesting the index might enter oversold territory.

Resistance level: 40900.00, 41600.00

Support level: 40450.00, 40100.00

USD/JPY, H4

The USD/JPY pair found support near the critical 142.20 level but continues to trade within its downtrend, indicating a bearish bias. The stronger-than-expected U.S. economic data released last Friday helped limit the pair's downside momentum, providing some relief for the dollar. Meanwhile, Monday's Japanese GDP data fell short of expectations, weakening the yen and preventing the pair from breaking below its recent lows. This has temporarily stabilised the pair, but the downtrend remains intact.

The pair is currently hovering close to its recent low level, while the bearish momentum seems to be gaining, suggesting the pair remains trading within its downtrend trajectory. The RSI remains close to the oversold zone, while the MACD continues to edge lower in line with the analysis above.

Resistance level: 143.50, 146.00

Support level: 141.40, 138.90

CL OIL, H4

Oil prices continued their downward trend as concerns over a global economic slowdown weighed on demand. US jobs data showed fewer job additions than anticipated, and OPEC+ agreed to postpone a planned oil production increase for October and November. Despite the bearish outlook, potential geopolitical tensions, including US and European sanctions on Iran for supplying missiles to Russia, are limiting further losses in oil prices.

Oil prices are trading lower while currently testing the support level. However, MACD has illustrated increasing bullish momentum, while RSI is at 38, suggesting the commodity might experience technical correction since the RSI rebounded sharply from oversold territory.

Resistance level: 71.80, 74.30

Support level: 68.25, 65.80