US data gives dollar strength

Markets opened this week on a positive note following a stronger-than-expected US non-farm payrolls report on Friday.

The report for last month showed that 255,000 new jobs were added, well above expectations of 180,000. Encouragingly, June’s figure was revised upwards to 292,000 from a previous 287,000.

The unemployment rate held at 4.9 per cent amid a growing labour force participation rate, which increased to 62.8 per cent from a previous 62.7 per cent.

Along with the solid job gains, there was decent traction in wage growth, with average ­hourly earnings increasing by 0.3 per cent from a previous 0.2 per cent. The stronger-than-expected ­figures immediately stoked expectations of a US rate hike this year (some estimates had a hike at 50 per cent in December) and subsequently took the dollar higher, along with equity markets.

The pricing action over the past two weeks will dictate movement in the weeks ahead – improving data points from the US economic calendar will continue to lend support to the dollar and vice versa. It seems the theme through the remainder of this year will be pegged to expectations of upcoming Fed action.

Having said this, the US calendar through the remainder of this month is relatively light, which means the dollar will remain neutral to slightly bullish against the majors.

We finally had action from the Bank of England’s Monetary Policy Committee when it cut rates in the UK to 0.25 per cent from 0.5 per cent, and increasing its asset purchase programme by £60 billion to a revised £435bn per month.

The markets had been expecting this announcement from last month, the last time the MPC convened.

The pound sold off more than 2 per cent to the end of last week to consolidate at about US$1.30 levels at present.

The downsides are expected to continue in the weeks ahead – a host of growth-related data is expected to show a slowdown in the UK.

The Dubai Gold & Commodities Exchange (DGCX) pound contract is expected to test 1.2850 levels in the weeks ahead, where we expect strong support to kick in.

As a result of the recent dollar bounce, gold has also found weakness and retraced from last month’s highs of $1,370 levels.

Going forward, the precious metal will take direct cues from dollar strength/weakness and we expect the DGCX gold contract for September delivery to test the channel between $1,310 and $1,315 in the weeks ahead.

With a rather light economic calendar in the next two weeks, we will be focusing on the New Zealand interest rate decision, which is expected to be cut to 2 per cent from the ­current 2.25 per cent on Thursday, along with a host of ­economic data from China, which includes figures expected to show that inflation has slowed to 1.8 per cent from a previous reading of 1.9 per cent.

And finally, following a brutal close to last month in which West Texas Crude oil shed more than 14 per cent, energy markets are back on the uptick this month and have retraced more than 6 per cent of those losses.

Assuming there are no major surprises in this week’s crude inventory report, expect further upsides in DGCX crude contract towards $44 per barrel, where strong resistance will kick in.

Gaurav Kashyap is the head of ­futures at Axitrader in Dubai

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