Non-Farm Payrolls Shine, Markets to Prepare for a September Taper Announcement

Fundamental analysis of Forex market

US Non-farm Payrolls for July were +943,000 vs +870,000 expected and a higher revised +938,000 in  June!  In addition, the Unemployment Rate fell from 5.9% to 5.4%, and 5.7% expected.  This was a massive beat compared to expectations.  Also, Average Hourly Earnings rose by 0.4% vs 0.3% expected and a higher revised 0.4% in June.  With inflation moving higher, its important to see that it is feeding through to wages as well.

The US Federal reserve should be very happy with this data.  The FOMC mentioned in their most recent meeting that progress has been made towards achieving their goals for tapering.  However, since then, several Fed speakers, including Powell himself at the press conference, have indicated that they will need several months of strong employment data to indicate that they will announce tapering.  This alone says that a Jackson Hole announcement of tapering is unlikely.  However, the strength of today’s NFP does open the door ever so slightly for that possibility.  Comments from fed speakers this week could provide clues as to when the tapering announcement will come.  For your guide, the Jackson Hole Symposium is August 26th-28th, 2021.

After the release of the strong Non-Farm Payroll data today, the US Dollar and US bond yields began to move aggressively higher.  USD/JPY, which is particularly sensitive to US yields, caught a strong bid. Over the last 3 days, the pair has moved from 108.72 to today’s highs (so far) at 110.35.  Today alone USD/JPY is currently up 54 pips and 0.50%.  Horizonal resistance above is at 110.70 and then the July 2nd highs at 111.51.  Support is at today’s lows of 109.70, followed by the week’s lows of 108.72.

Source: Tradingview, Stone X

As the US Dollar moves higher, Gold (XAU/USD) is getting wacked. XAU/USD has broken below the downward sloping trendline from the August 2020 highs, near 1795, and is testing horizontal support and the 61.8% Fibonacci retracement from the March 29th lows to the June 1s highs near 1756/1770.  Below there, price has room to drop to the March 29th lows at 1679.  Resistance is at today’s highs of 1804.5, and then horizontal resistance at the recent highs near 1834.

Source: Tradingview, Stone X

Today’s Non-Farm payroll data was strong, and it sent the US Dollar bid and caused Gold to move lower.  Incidentally, stocks are rangebound so far today, as traders aren’t sure if they should continue to play the free month game or get ready for a taper.  However, they have some time to figure it out as the Fed may not announce that they will begin tapering until the September meeting.