Overnight Headlines

*USD pulls back in response to profit-taking and easing rate hike fears

*US equities hit fresh record highs after solid NFP

*Vix dipped to 15.07, well below the long-term average

USD fell after the healthy nonfarm payrolls numbers with some profit taking likely behind the dollar weakness as DXY had made another new cycle high at 92.74 on the release. We are now trading just below the post-Fed highs and trading may be light today with the US Independence day holiday. EUR broke to new cycle lows at 1.1807 before pulling back and sits on previous support, likewise GBP.  

US equities closed at new all-time highs with the advance in the S&P500 marking the seventh straight trading day that the index has closed at a record, the longest streak since 1997. The Nasdaq ended the week up 2% and reflected the continued shift into growth and tech pointing to a big preference for large caps, with the small cap Russell 2000 heavily underperforming. Mixed markets in Asia so far today with US markets closed for holiday.

The OPEC+ meeting is set to meet again today having failed to come to an agreement amid rising tensions between the UAE and Saudi Arabia. If no deal is reached, output will likely not increase in August and the remainder of the year risking further rises in oil prices.  

Market Thoughts – Not too hot, not too cold

Friday’s headline NFP number beat expectations, though the unemployment rate was higher than expected. Progress in job generation remains soft compared to high labour demand but jobs growth is rising and should continue as jobless benefits are lowered. This will be welcomed by the Fed and is leading some analysts to call the report a “Goldilocks” moment for markets – “not too hot, not too cold”. This is because the FOMC won’t be tempted to rein in stimulus just yet with the divergence in the two main gauges of the labour market meaning the Fed can stand aside rather than feel any pressure to act swiftly.

The calendar is quite light this week with the highlight probably being the FOMC minutes on Wednesday. Focus will be on how the hawks and doves are arguing their cases after seven officials cast their dots for a first rate hike in 2022 and any tapering discussions.

Chart of the Day – DXY holding gains so far

In the end, we saw dollar profit taking after the monthly US jobs report with the holiday also coaxing those into taking some risk off the table. After making new cycle highs just after the NFP release at 92.74, DXY has pulled back. Perhaps this is all unsurprising after the 2% rise in the three weeks since the Fed surprised the market. The upper Keltner channel was pierced, and the daily RSI was also signalling overbought, touching 70 and has eased. Dollar strength is expected to linger with a fairly sanguine risk environment not damaging for DXY. Support below lies at 92 and then a Fib level of this years’ high/low at 91.82 while the post-Fed highs at 92.39 and then Friday’s high is resistance to tackle if bulls reassert themselves.