Last week and specifically on Friday the 3rd of February the markets witnessed one of the most surprising economic releases, which led to sudden drops in major world currencies facing the U.S. dollar.
The dollar index increased by around 1.14%, while EUR/USD and GBP/USD dropped roughly 1.1%, and 1.4% respectively.
These movements were led by the much better-than-expected jobs report in the U.S., whereby the unemployment rate dropped to 3.4% down from 3.5%, and the jobs market was able to raise 514,000 jobs in the month of January, much better than the expectation which was around 193,000 jobs.
All of this combined with the somewhat aggressive tone of the federal reserve in the press conference last Wednesday, drove investors’ behaviour to be hawkish o the U.S. dollar, as further interest rate increases might take place.
On the other hand, USD/CHF, and USD/JPY witnessed a strong pullback to the upside by approximately 1.45%, and 1.88% respectively.
As these movements might seem strong and powered by fundamental and technical reasons, however, the major trend of the USD remains to the downside as the federal reserve currently holds one of the highest interest rates among its peers, with limited room to remain aggressive in the long run.
This week the focus shifts to Powell’s speech which might reaffirm the federal reserve’ aggressive monetary policy which might have a similar impact on the market.
Precious metals declined the previous week after the release of the US jobs data report, which indicated that the US economy added 517 thousand jobs during the month of January, exceeding expectations of 187 thousand jobs, with the unemployment rate declining to 3.4%, which means that the labour market is still strong and increased fears of rising inflation, given that the Federal Reserve aims to slow down the labour market in order to control inflation, and this led the investors to raise their expectations that the Federal Reserve Bank may go to a more stringent monetary policy than previously expected, which formed positive support for the US dollar and negative for precious metals.
Technically: Gold (Figure 1) declined last week by 3.2% and broke the upward trend line in the short term, in addition to breaking the technical and psychological support at $1900 an ounce, and it is currently trading below the moving average for the last 20 days, and currently, levels close to 1866 are considered important support for gold’s movement will see how it deals with those levels.
As for silver (Figure 2): it declined last week by 5.2%, breaking the price channel that it had been trading within since December 2022, and is currently trying to target the previous support area near $23.1 an ounce.
(Figure 1): XAUUSD, Metatrader 5, CFI Brokerage
(Figure 2): XAGUSD, Metatrader 5, CFI Brokerage
last week Dow jones declined with 0.20%, SP500 gained 1.7% and Nasdaq 100 gained 3.3%. Wednesday, Powell’s comment that the “disinflation process has started” suggested that the aggressive tightening cycle is starting to reduce the pace of price growth, even as he warned of a “couple” more hikes that pushed the stocks higher.
Nonfarm payrolls were so strong that perhaps they spooked the market into thinking the Federal Reserve could raise by +0.50% on Feb. 22. At +517k, nonfarm payrolls were nearly triple the estimate, and they were the largest single monthly gain since July 2022. The Fed’s main concern is they’re not yet seeing the impact of their tightening in the labour markets.
Q4 earnings season is halfway through. Around 72% of the businesses that reported earnings this week beat the market's expectations in terms of EPS.
To date, half of the S&P 500 have released their Q4 results. In terms of growth, Q4 earnings are currently down 3.8% YoY compared to the -4.1% projection at the conclusion of the quarter.
Compared to a +3.8% projection at the end of Q4, Q4 revenues are currently up 5.1% year over year.
WTI dropped 7.5% last week while OPEC held its meeting. The alliance’s market-monitoring committee met on Wednesday and recommended keeping crude production steady amid uncertainty over the strength of China’s economic rebound and the volume of Russian exports as Western nations tighten sanctions on Moscow.
Saudi Arabia’s energy minister reiterated that the kingdom will remain cautious about raising oil production. Yet the oil market remains tight Goldman Sachs Group Inc., citing low stockpiles and spare capacity among producers, sees Brent rising back above $100 a barrel in the third quarter. Morgan Stanley has a similar forecast.
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