FOREX Fundamental analysis on August 5, 2022
Today, markets are waiting for Non-farm Payrolls to confirm or deny signals of an approaching recession. The inversion of the yield curve and the slowdown in economic growth indicate the beginning of a recession. Economic indicators and statements by FOMC members suggest the opposite.
Reuters forecasts July employment at the level of 250 thousand jobs, which is lower than last month's figure of 372 thousand and will be a minimum of 19 months. It is possible that the labor market has taken a pause after the rapid post-pandemic growth.
This is, in fact, what the Fed needs. When rates rise, companies get more expensive loans and have to choose between financial obligations and employee salaries. As a rule, borrowers win. Salaries of employees remain at the same levels, personal consumption decreases, price growth slows down.
And everything would be fine with Jerome Powell's team if it weren't for the market, the whims of which are often difficult to predict. The S&P 500 strengthened by 13%, which reduced the probability of an economic recession over the next 12 months from 91% to 51%. However, the situation in the commodity markets is diametrically opposite.
The probability of a recession from financial markets
At the same time, the stock market is confident that the Fed will pause in raising rates, and in 2023 will move to lower them. This, of course, will allow inflation to remain at high levels, so it is unlikely that the Fed will like this scenario.
But the S&P 500 does not seem to hear the "hawkish" comments of the monetary authorities and rushes up, ignoring the Fed's policy. This can lead to serious losses for traders who like risky assets.
I think that EUR/USD buyers will not be saved even by the ultra-weak statistics of the American labor market. At best, the bulls will try to take the pair through the upper limit of the 1.01-1.03 range and test 1.0355 or even 1.0395. But they are unlikely to break through higher. With a high degree of probability, the initiative here will be intercepted by "bears" with new medium-term sales. Another reason to open short positions is a breakout of the 1.0180 support.