Overnight Headlines

*Dollar wavers as traders await NFP, AUD higher on rate hike bets

*FOMC policymakers: September rate hike a question of how big, not if

*Oil set for sixth weekly gain as OPEC+ supply boost disappoints

*Gold hits one-month high as dollar wanes, set for weekly advance

US equities snapped a two-day losing streak, on pace for a winning week. The S&P500 gained 1.8%, the Dow 1.3% and the Nasdaq added 2.7%. The gains come despite Microsoft cutting its quarterly revenue forecasts on the back of unfavourable exchange rates. Asian stocks are mixed while US and European futures point to a very modest positive open.

USD lost all its gains from Tuesday, easing against most of the majors. The DXY closed down 0.7% with Monday’s low at 101.29. EUR bounced off the 1.0636 support and is trading above the 50-day SMA at 1.0719. GBP rose to 1.2585. USD/JPY took a breather after three strong up days, consolidating just below 130. The commodity currencies were firm, AUD rose above 0.7250 and is currently trading on its 200-day SMA at 0.7256. USD/CAD dropped below 1.26 with next support at 1.2546.

Day Ahead – Solid NFP report expected

It’s the first Friday of the month so the major US jobs report is on tap. Employment likely increased at a brisk clip in May, with +325k job gains forecast. The jobless rate is seen dropping to its pre-pandemic low of 3.5% which should support robust wage growth at 0.4% m/m. We note the ISM employment component disappointed due to supply factors and this could see the headline disappoint. But this would not be due to lack of demand as there are nearly two job vacancies for every unemployed American.

A picture of an economy that continues to expand, albeit at a more moderate pace is expected. Signs of a tight labour market would keep the Fed’s foot on the pedal to cool demand and slow inflationary pressures. The Fed’s vice-chair Brainard suggested yesterday that the FOMC may pursue aggressive rate rises into September, so no pause. A hotter set of data would likely see the dollar go bid and risky assets selloff as it would indicate the need to a more hawkish Fed.

Chart of the Day – US benchmark index bullish breakout

The S&P500 withstood a headwind yesterday of a bleak corporate earnings forecast and hawkish Fed comments. The prospect of higher interest rates especially, which can eat into companies’ future revenues, did little to dim US stocks. The jobs report later today may test stocks again if we see a stronger than expected report. The flip side, and notably softer wage growth, will see buyers appear as less rate hikes are potentially needed after the summer.

The blue-chip US equity index bounced off a major Fib level (38.2%) of the March 2020/January 20222 move a few weeks ago at 3815. Since then, prices have broken through short-term trendline support from the October low. The last few sessions have seen consolidation around the February low at 4114. Yesterday’s advance closed above this consolidation with bulls looking at the next Fib level (23.6%) at 4198. Above here is the 50-day SMA at 4256 which the index last moved above in March. Support remains at 4114 and 4000.