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Monthly US Employment Reports (NFPs) are always eagerly awaited. But the one that will be published at 2:30 p.m., for the month of August, focuses attention even more than usual. The challenge is simple: to measure the extent to which the tensions on the labor market – tensions that naturally generate inflation – are in the process of decreasing. Because hope was maintained throughout the week with various statistics, in the forefront of which figures the JOLTS (the survey on job openings) and the survey of the private firm in human resources ADP.
This decrease in tensions, more or less significant as we shall see, will have the advantage of endorsing the scenario of the pure and simple disappearance of the specter of a price/wage runaway. What about the expectations regarding this Non Farm Payrolls? First of all a stabilization of the unemployment rate at 3.5% of the active population; a moderation in the increase in average hourly wages, to +0.2% thereafter; and finally, job creations in the private sector excluding agriculture, at 169,000, against 187,000 in July. Verdict at 2:30 p.m.
“The job market seems to be starting, some would say finally, a rebalancing,” said LBPAM strategists in a note yesterday. “The very buoyant nature of the labor market seems to be initiating a real decline, even if it seems very gradual. Nevertheless, at just under 9 million, offers remain historically very high. This adjustment, although it seems slow, could come to cool faster than expected, first consumption, then the activity in general.”
No good surprise yesterday regarding July PCE prices up 0.2%, in line with target. Not enough to make the Treasuries 10 years, which now gravitate wisely towards 4.11%, pending the federal report on US employment. Remember that the PCE (personal consumption index) is the Fed’s preferred measure in its assessment of price dynamics.
At midday on the foreign exchange market, the Euro was trading against $1.0840 approximately.
KEY GRAPHIC ELEMENTS
The near total retracement of July’s gains does not militate at this stage for a continuation of the advance of the currency pair, without formally ruling it out. This retracement, by its magnitude, weakens the bullish message then delivered over a good part of July. The outcome of the ongoing test of the 50-day moving average (in orange) will be decisive. The bearish message takes shape with the break – now validated – of the 50-day moving average by its 20-day counterpart (in dark blue), at a significant angle. The short position will be maintained as long as the last one gravitates below the first one.
MEDIUM TERM FORECAST
In view of the key graphic factors that we have mentioned, our opinion is negative in the medium term on the Euro Dollar (EURUSD) parity.
Our entry point is at 1.0844 USD. The price target of our bearish scenario is at 1.0551 USD. To preserve the invested capital, we advise you to position a protective stop at 1.0935 USD.
The expected return of this Forex strategy is 293 pips and the risk of loss is 91 pips.
The News Bulletin 247 board
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