US labour market is cooling

BY Janne Muta

|August 4, 2023

While the ADP report surprised to the upside analyst consensus expects to see a modest decrease in the number of new hirings in the US (205K, 209K prior). According to the ADP, US private businesses added 324K jobs in July, outperforming market expectations of a 189K increase. The discrepancy is big but overall, the US job market has been cooling over the last 18 months and the ADP data hasn’t usually been a good guide for the official employment data release.

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Furthermore, the JOLTS report shows US job openings dropping by 34K to 9.582 million in June 2023. This is the lowest level since April 2021 and misses the market consensus of 9.61 million.
The overall health of the economy is reportedly exceeding expectations, supporting consistent household spending. While this optimism indicates that the economy isn’t falling off the cliff, slowing rate of pay growth could over time start to slow down business activity.

In terms of unemployment benefits, a slight uptick was observed, with 227K Americans filing in the week ending July 29th, an increase of 6,000 from the previous week. Continuing claims rose slightly to 1.7 million, aligning with expectations. However, these increases were relatively small, underscoring the continued tightness in the US labour market.

The ISM Services PMI, a measure of the nation's activity level of purchasing managers in the services sector, dipped to 52.7 in July 2023 from 53.9 in June. Despite this decline, the majority of respondents remained cautiously optimistic about the overall business conditions and economy.

USD has been strong lately but it’s not likely to relate to the recent employment data or expectations on the Fed. According to WSJ, the dollar's strength could be rather attributed to the bond market reacting to increased borrowing by the US government. This pushes up the yields helping the dollar to go higher.

Furthermore, the Fed Funds Futures data indicates no change in the market rate hike expectations. As per this data, no rate hikes are on the horizon. Instead, traders expect the Fed to cut the rates in May next year. This could mean the NFP impact on the dollar is overshadowed by other dynamics unless there is a strong deviation from the expected jobs or earnings numbers.

EURUSD chart


EURUSD has traded lower for three weeks in a row. The market remains bearish if it can’t rally beyond the 1.0963 level. Above it we might see a move to 1.1020 and then perhaps to 1.1080 on extension. Below 1.0963, a move to 1.0850 could take place.

SP 500 chart

S&P 500

S&P 500 is trading below the moving averages and below what could be a short-term market top. The neckline of the topping formation is at 4528. If this level can’t be penetrated, we might see the market trading down to 4465. Above 4528, the market could move to 4560.

Gold chart


Gold is trading lower in the 4h chart. The nearest key resistance levels are at 1939 and 1942. If these levels aren’t penetrated decisively, the market remains bearish. Above 1942 we might see a rally to 1954.

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USDJPY chart


USDJPY has corrected lower and consolidates above 142. If the level breaks and the break is decisive USDJPY could move to 140.80. Above 142, look for a move to 143.20 and then perhaps we might see an extension to 144 or so.

The Next Main Risk Events

  • CAD - Employment Change
  • CAD - Unemployment Rate
  • USD - Average Hourly Earnings
  • USD - Non-Farm Employment Change
  • USD - Unemployment Rate
  • CAD - Ivey PMI

For more information and details see the TIOmarkets economic calendar.

Trade Safe!

Janne Muta
Chief Market Analyst

While research has been undertaken to compile the above content, it remains an informational and educational piece only. None of the content provided constitutes any form of investment advice.

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Janne Muta

Janne Muta holds an M.Sc in finance and has over 20 years experience in analysing and trading the financial markets.

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