Wage growth spooked equity investors
BY Janne Muta, M.Sc in Finance|July 10, 2023
Even though the number of new jobs was confirmed well below expectations it was the wages that caused the stock markets to sell off, signaling equity investors are preparing for more rate hikes. After the wage growth was reported to be 4.4% y/y, investors now expect to see, not only one but two rate hikes from the Fed.
Currency markets, however, clearly became sceptical about Fed’s ability or willingness to keep on hiking the rates. Even though the 10-yr. yield continued to trade higher the greenback lost ground against the main rivals. EUR (+0.55%) and JPY (+0.44%) lead the rally against the dollar. This week’s key risk events are the US CPI and PPI reports on Wednesday and Thursday respectively. Other key events include the RBNZ and the BOC rate decisions.
USDJPY has turned bearish after last week’s close was well below the previous weekly close. In theory, the market could still rally but the probability for sustained USD strength is now lower than the probability of dollar rallies failing. Below 143.42, the market is likely to trade down to 140.20. Above the 143.42 level, a move to 144.00 would look likely.
EURUSD has broken out of a bearish price channel. Above 1.0867, the market is likely to test last week’s high at 1.1011. The nearest key support level is at 1.0900. Below 1.0867, look for a move to 1.0830.
EURNZD is rallying higher after the market became oversold in the daily timeframe. The strong rally higher on Thursday indicates there’s more upside in this market. EURNZD is bullish above 1.7590 and could trade to 1.7850. Below 1.7590, the market could move to 1.7520.
DJ has created a lower swing high in the daily timeframe chart. The bulls failed to successfully challenge the bears near a key resistance level suggesting there could be further weakness in the market. Note, however, that the market is now trading at a key support level. If the 33 607 support is broken decisively, look for a move to 33 400 and then possibly to 32 600 on extension. Above 33 607, the market could move to 34 010.
After the lower swing high, the market is now likely to break the 33 607 support level and start trading below it. It’s obviously not guaranteed that the support will fail but in trading, we never have the luxury of certainties. Instead, we always deal with probabilities. We assess the probabilities and then trade the price action. Price action will tell us what the probabilities for either bullish or bearish moves in each timeframe are. Therefore, trade what you see the price doing and keep the bigger picture in mind.
The Next Main Risk Events
- GBP - Claimant Count Change
- NZD - Cash Rate
- USD - CPI and Core CPI
- CAD - BOC Overnight Rate
- GBP - UK GDP
- USD - PPI and Core PPI
- USD - Prelim UoM Consumer Sentiment
For more information and details see the TIOmarkets economic calendar.
Chief Market Analyst
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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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