US unemployment data disappoints,commodity-linked currencies rise

Market Recap

Global equity market

The Federal Reserveannounce their inflation targets and subsequently enhanced the market’s low interest rate expectations. The Dow Jones rose 0.57% to28492.27; the NASDAQ fell 0.38% after a three-day rise,dropping to 11926.16.

The S&P 500 closed higher by 0.17% at 3484.55. Banking and aviation stocks kept strong, while medical (specifically antiviral treatment) stocks dropped.

Europe’s market was not optimistic - the DAX remained weak andfell 0.71% to 13096.36, while the FTSE dropped below 6000 with a 0.75% fall.

Thursday was a good day for Chinese stock market, however - all three major stock indices closed higher: the Shanghai Composite Index rose 0.61%,the Shenzhen Component Index rose 0.79%, the ChiNext Index rose 1.70% and Star 50 rose 2.48%. The Semiconductor sector performed strongly andthe  motorvehicle, food and electricity divisions lead the market.

Precious metal forward contracts

Gold fought back to $1930-1950;during the US market time, Powell’s speech lead to a sharp rise and quick fall afterwards, hitting highs of 1976.57 but then dropped to lows around 1910 with a $70 fall. By closing, the price fell by 1.3% to settle at $1929.2.

Sliver hit a $27.9 daily high but ended up with a 3.87% drop at $26.39/ounce.

Crude oil forward contracts

WTI was quiet yesterday -a short fall during the European session was enhanced during US hours, hitting lws of $42.35. As of closing, it recovered bit by closing down by 1.02% at $43 per barrel.

Brent closed down by 1.42% at $45.13 per barrel.

Currency forward contracts

·        USDXup to 92.99 (0.205%)

·        EUR/USDdown to 1.18166 (-0.116%)

·        GBP/USDdown to1.31963 (-0.089%)

·        AUD/USDup to0.72584-0.358%)

·        NZD/USDup to 0.66412-0.375%)

·        USD/CADdown to1.31453 (-0.188%)

·        USD/JPYup to 106.514(0.524%)

Global Fundamentals

United States

Federal Reserve Chairman Jerome Powell announced a new approach to stimulating the US economy: theFed will look to adapt to a new era of inflation.

It will tolerate inflation rising above 2% for short periods, which means the Fed will likely be more comfortable keeping its extraordinary stimulus measures in place for longer as it waits for the labour market to heat up and the economy to recover - even at the cost of a recession.

In practice, however, it is questionable whether this will actually mean any changeto what the central bank has been doing up to now.

Dallas Fed CEO Robert Kaplan stated that,along with the employment market recovering,high inflation should be treated with an open mind; a new framework could cause the US to run a much more positive but more aggressive labour market. Nevertheless, he noted that anew framework is not a guarantee from the Fedand the market should not solely rely on the central bank’s policies for recovery.

Unemployment allowance applications for the week ending 22^nd August were 1,000,600- still over a million and worse than expected. The US’annualised GDP for Q2 was -31.7% compared to the same time in last year, refreshing a recorddrop.

Europe

Philip Lane, THE European Central Bank’s (ECB) chief economist, discussed the state of the global economy and its outlook prospects, noting the ECB may take more actions to ensure the inflation rate meets its targets, even if it may take more time and at a greater cost.

Lane also stated concerns that low inflation in the long run may lead to further drops in market expectations.

China

China announced a net ofCNY100bn seven-day reverse repos auction at the unchanged rate of 2.2% on 27th August. The People’s Bank of China (PBoC) said the move aims to maintain reasonable and sufficient liquidity.

A total CNY160bn in reverse repos matured on the same day.

Today’s currency forecast

EUR/USD

Yesterday, the market was driven by the US GDP data and Fed speech, while the Euro’sfundamentals stayed quiet. As discussed in yesterday’s live seminar: even the unemploymentclaims were worse than predicted and still above a million, but the market would likely treat this asneutral. 

The mid-termplan forboth EUR/USD and GBP/USD will follow our previous strategy- but in the short-term, we could place short positions for EUR/USD, targeting at 25-30 pips, while participation in the GBP/USD reconsolidation is not recommended.

[EUR/USD, four-hour chart] (Source: KVB PRIME)

AUD/USD

Recently, commodity prices have pushed up related currencies such as the Australian dollar. Also, we are coming towards the end of Q3, which we predicted as a turning point for the AUD, so we would ideally begin to pay more attention to it.

Intraday, the AUD price seems far too aggressive; reconsolidation seems to be the major scheme for today towards 0.7238

[AUD/USD, four-hour chart] (Source: KVB PRIME)

Gold

Gold seems to be no longer favoured by the market. Prices rose and fell like a roller coaster during the Fedspeech.

The price direction seems pessimistic, heading down with reconsolidation as we expected. We predict the price will keep dropping towards $1900 - ourintraday layout is still set to a $10 margin space for short placements.

[XAU/USD, four-hour chart] (Source: KVB PRIME)

USD Index

As yesterday’s report was published, the USDX completed a $0.14 draw back as our profit margin. Yesterday’s Fed speech stated the difficulty of holding inflation rates without efficient tools and methods.

TheJapanese, UK and EU economies are also suffering, but the US looks to be faring the worst and the USDX will be weak over theshort term.

Nevertheless, we still maintain our previous notion: the USDX will fight back before the election. For a short layout, we are expecting the USDX to return to 93.05. 

[USDX, four-hour chart] (Source: KVB PRIME)