The US Non-Farm Payroll figures for December rose from 199,000 to 216,000 and beat expectations of 168,000. The Unemployment Rate unexpectedly remained low at 3.7% instead of rising to 3.8%. However, the real shock came from the Average Hourly Earnings rising for a second consecutive month. So, how did the trading markets react and how are they reacting this morning?
XAUUSD – Technical Analysis Points to Potential Sell Signals
The price of Gold along with other Dollar-correlated assets at first benefited from the stronger than expected employment data. The price of Gold rose 1.31% and also formed a 0.34% bullish price gap. However, the asset struggled at the previous price range and quickly gave up gains. This morning the price of Gold is declining 0.70% which is considerably high for the Asian session and continues to maintain a sell signal on the 2-Hour Chart. The price is trading below the 75-bar average price and below the neutral on the Relative Strength Index. In addition to this, on the 5-Minute Chart the price is also forming a bearish crossover. All the above indicate a potential downward price movement and are likely to strengthen if the price declines below $2,029.00.
The US Dollar Index this during this morning’s Asian session is trading at the day’s open price, however, volatility is likely to strongly influence Gold. However, US Bond Yields are considerably higher this morning which potentially could support the Dollar throughout the day. If the Dollar Index and Bond Yields rise, the price of Gold has a higher possibility of witnessing bearish price movement.
USA100 – Bond Yields Rise Ahead of US CPI
The USA100 rose by 1.20% after the release of the US employment data and bullish volatility rose with strong momentum. According to order flow analysts, the upward price movement was partially triggered by the quick decline in entering pending orders. Investors were clearly looking to take advantage of the lower entry point. However, in addition to this, the employment data clearly indicates the strength of the employment sector, the economy and the ability to cope with higher interest rates. As a result, investor sentiment rose and was less concerned about the restrictive monetary policy.
However, the positive data also means the Federal Reserve is unlikely to feel the need to lower the Federal Fund Rate to support the economy. According to JPMorgan, the possibilities of an interest rate cut in March are now relatively low. Though the CM FedWatch Tool continues to indicate a strong possibility of a small cut in March. Therefore, investors are evaluating whether the assets and stock market may be overpriced considering the Fed is now likely to cut within the first 6 months of 2024.
According to Bloomberg, investors are less worried about when rate cuts will start as long as further hikes are unlikely. This is largely due to positive data and expectations of a “soft landing”. This shows the economy can deal with higher interest rates. The main concern for investors is that inflation does not rise. Thursday’s Consumer Price Index is likely to be particularly influential and inflation is expected to rise for the first time since September. If the Consumer Price Index reads higher than 0.2%, the USA100 potentially could witness a significant decline. Buyers will be hoping inflation reads no higher than 3.1%, or even better slightly declines.
The price movement this morning is trading lower, and investors’ main concern is the US market’s bond yields which are significantly higher. Higher bond yields can pressure the stock market and if yields continue to rise, stocks will become less attractive. Currently, the price of the USA100 is trading below the 75-Bar trend line, below the VWAP and below the neutral on the Relative Strength Oscillator. All three indicators point towards a potential decline. However, investors should note this is likely to change if the price rises above $16,435.
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Michalis Efthymiou
Market Analyst
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