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US Employment and CPI Summary
US employers have impressively expanded their workforce and increased employee numbers in defiance of the advanced business cycle and Federal Reserve tightening efforts. As we approach the latter part of 2023, the labor market continues to support the overall economy strongly.
According to the latest data from the US Department of Labor, the country added 336,000 jobs in September, exceeding expectations of 170,000. August payrolls were also revised upwards to 227,000. However, household data suggests that the unemployment rate remained steady at 3.8%, highlighting a persistent imbalance between labor supply and demand.
After the release of the employment report, the rising yields on US Treasury bonds caused the US dollar, measured by the DXY index, to continue to soar. Conversely, gold prices plummeted due to rising interest rates and foreign exchange market dynamics.
Although Federal Reserve officials have hinted at further monetary policy tightening this year, they haven’t fully committed to this course of action. The Non-Farm Payrolls report’s results could sway policymakers towards another interest rate hike in 2023, which would maintain yields and the US dollar’s value upward. In this scenario, gold is likely to remain under pressure.
During its recent Central Bank meeting, the Bank of Japan (BoJ) decided to maintain its current interest rates and refrained from expressing any immediate plans to tighten its policy. This outcome was widely anticipated and is projected to persist into the fourth quarter. Nevertheless, it is crucial to bear in mind that the BoJ may still consider intervening in foreign exchange (FX) if required. While Japanese authorities have employed verbal feedback to bolster the value of the Yen, some former BoJ members have intimated that actual FX intervention may occur if the Yen approaches the 150.00 level.
It is worth noting that the BoJ intervened in FX on September 22, 2022, which led to a significant surge in the USDJPY pair, as illustrated in the chart below. However, the USDJPY then underwent a considerable decline from its peak of around 152.00 to approximately 128.00 by early January. Should FX intervention arise again, it could have a comparable impact on the currency pair.
Taking a closer look at the technical analysis, we can observe that we are currently in a strong uptrend and getting closer to the upper end of the channel. However, I would prefer to wait for a retest of the 150.00-152.00 range before considering a potential short opportunity. Waiting for an announcement about FX intervention may also be advantageous because, as previously mentioned, last year’s intervention led to a brief spike in USDJPY before the consequent sell-off a few days later.
If a downside move opportunity arises, the potential remains significant. I recommend monitoring developments around the BoJ as USDJPY approaches the 150.00 psychological level and using your discretion for potential entry opportunities. It is vital to remain vigilant and cautious when making financial decisions, especially when dealing with currency pairs.
- 152.200 (Weekly Resistance)
Upon analyzing the daily chart, it is evident that EUR/USD has been on a bearish momentum for several months now. However, it recently rejected the support level at the marked 1.04509 level, which is of immense significance from a technical standpoint as it aligns with the 0.50% Fibonacci retracement.e
Despite the 1.04509 level’s ability to hold on Friday, it remains vulnerable as the market is presently under the bears’ control. If the level fails to hold, it could result in considerable downward pressure leading to a drop towards 1.02124, which serves as the 61.8% Fibonacci retracement.
However, if the market sentiment turns favorable for buyers, a rebound could gain momentum. In such a scenario, the initial resistance level is near the level mark of 1.06585. Although it might be a daunting task for the bulls to break through this barrier, a successful breakout could greatly reinforce upward momentum, leading to a rally towards 1.07550 and 1.09515.
The EURJPY has been experiencing an uptrend since May 2020, consistently achieving higher highs and higher lows. In March, the EURJPY gained even more momentum within an ascending channel, but this quarter has seen a slowdown in momentum as buyers failed to surpass a key technical barrier near 160.00.
Currently, the pair has been trading within a range for about a month. On Tuesday, it broke out below 156.840, as previously predicted, but bearish hopes of sending it to the 141.194 support area were short-lived when the weekly chart closed at the top of the range.
This week will be interesting as the EURJPY failed to break above the channel line, making it a critical area. If it breaks above 158.700, the uptrend may continue, but if it fails to break above this area, it may fall to the 154.430 and 151.190 support areas.
GOLD (XAUUSD) Forecast
The US Congress prevented a government shutdown by extending the budget until November 17. However, market caution persisted due to political uncertainty, resulting in a sell-off of US Treasury bonds and a 2% increase in the 10-year bond yields on Monday. As a consequence, XAUUSD (GOLD) closed with losses.
Late Friday trading saw gold spot prices surge to $1,833.00 following a surprisingly strong US Non-Farm Payrolls (NFP) report. This influx of risk-on flows has sent XAUUSD to new highs, although it remains notably lower than its Monday opening prices.
The US economy added an astonishing 26,000 jobs, surpassing expectations of 170,000 and surpassing the previous reading of 227,000 which was also revised upward from the initial estimate of 178,000. Following the NFP beat, market sentiment has firmly turned bullish, pushing XAUUSD higher on the charts after seeing spot gold prices under significant pressure for most of the week.
Gold prices have faced substantial downward pressure, primarily due to US Treasury yields reaching 17-year highs. This prompted investors to seek refuge in safe-haven assets, leading to a surge in the US Dollar’s value. While markets are currently experiencing a brief respite from soaring Treasury yields, the upcoming week is expected to bring renewed pressure with the release of the US Producer Price Index (PPI) figures and the Federal Reserve’s (Fed) latest meeting minutes. Investors will closely scrutinize the Fed’s internal discussions, searching for clues about the central bank’s future direction regarding interest rates.
Despite a brief increase in Gold prices on Friday, the XAUUSD (GOLD) is currently in a bearish state and has dropped almost 6% from its peak near $1,950.00 in mid-September.
There is potential for the XAUUSD (GOLD) to experience a bullish rally, but Gold bulls will face a challenge in pushing prices back into the bullish territory due to significant resistance levels that need to be broken.
In my opinion, a break above 1835 could lead to a bull run, but it’s important for bulls to exercise caution and wait for a clear break and retest before opening any buy positions.
If 1835 is rejected, it’s likely that Gold prices will continue to decline and fall below 1800.
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