🏆Gold nears $1,800 ahead of NFP release!

Reports from the US jobs market are crucial for investors not only in the United States but also worldwide as they tend to have an impact on USD, equity markets as well as the level of Fed rates. Strong labor market seemed to be the only factor shielding the US economy from a real recession. As such, the key question right now is whether it remains strong enough to warrant further Fed tightening?

What to know ahead of the NFP release?

• US employment is yet to recover to pre-pandemic levels but labor fund is at new record highs

• Jobless claims have been on the rise in recent weeks. Data for last week showed 260k initial jobless claims, up from 160k back in March

• According to JPMorgan, initial jobless claims above 275k would hint at a recession

• Job openings (JOLTS) dropped significantly recently but remain at very high level of 10.7 million

• Pace of hiring in the US is still higher than pace of layoffs

• Wages in retail and restaurant sectors increase quickly and lead to hiring problems in construction, healthcare and industrial sectors

• ISM employment subindices remain below 50 threshold but have rebounded compared to June

What markets expect from today's release?

• Median estimate points to a 250k increase in US employment in July, following a 372k jobs gain in June. If confirmed, it would be the lowest reading since December 2020

• Unemployment rate is expected to remain unchanged at 3.6%

• Wage growth is expected to decelerate from 5.1 to 4.9% YoY

• Month-over-month wage growth expected at 0.3% MoM, in-line with previous month's reading

How may markets react?

Expectations for today's NFP report remain strong but it looks like investors would like to receive confirmation that the US economy is heading for a recession. As such, there is a scope that they will be disappointed if wage growth remains strong. In such a scenario, yields should continue on an upward trajectory, providing support for the US dollar. A jobs gain over 200k and wage growth at or above 4.9% YoY would be a positive for the economy.

USDJPY

USDJPY currency pair experienced the largest downward correction since the beginning of 2021. A drop was fuelled by a drop in US yields. However, Fed remained hawkish at latest meeting, putting upward pressure on yields and USDJPY alike. Key resistance to watch on the pair can be found in the 135.00 area. 

Source: xStation5

GOLD

Gold continues to a V-shaped recovery. Gold trades higher even in spite of a recent pick-up in yields. Interestingly, we are observing quite a strong correlation between gold and S&P 500 index (US500, light blue overlay on the chart below). Should NFP disappoint (payroll below 150k and wage growth below 4.9% YoY), market odds for future rate hikes may drop. This would be a chance for gold to complete a V-shaped recovery. However, it should be noted that gold price nears the upper limit of a market geometry, what may limit further upside.

Source: xStation5