Overnight Headlines

*USD hits three-month highs, rising to 92.60

*US equities ended higher continuing to post records

*NFP print expected to increase 711k, unemployment to 5.6%

USD rose for the seventh day in eight touching levels last seen in early April. DXY is now overbought on the daily RSI and piercing the upper Keltner band. This normally means we will see some retracement and has been a good guide in the recent past. EUR/USD hasn’t broken decisively through the post-Fed lows, managing to cling onto support and the prior lows around 1.1847.

US equities kicked off the second half of the year in buoyant mood with the S&P500 gaining for a sixth straight session, led by cyclicals with the energy sector the clear winner. Risk appetite has spread to Asian stock markets with the exception of China as Japan snaps a four-day losing streak. US and European futures are modestly in the green.

The OPEC+ meeting is still in progress but reports suggest the group may be opting for a lower supply increase than expected of 400k barrels per day which boosted oil and lent support to oil exporting currencies.

Market Thoughts – The waiting is finally over…

Will weak jobs growth continue after two disappointing months? This key question may hold the key to trading in July as all the reasons for a labour shortage once again get debated by economists and market watchers. The median estimate of the great and the good on Wall Street is for 711k job gains in June from the 278k and 559k previously and an unemployment rate of 5.6% from the 5.8% in May. We will also be keeping an eye out for revisions to the prior headline prints and if wage growth is rising due to labour shortages.

Yesterday’s weekly jobless claims data came in lower than expected, a promising sign ahead of today’s report. With state benefits and job support being turned off by many states, expectations are for a big jump in payrolls at some point. The range of analyst estimates is 495k to 1,050k for what it’s worth. We tend to think we need to see a 1 million headline number for the market to act aggressively, with buying preferred in USD/CHF and selling in EUR/USD as dollar shorts scramble to cover their positions. This year has seen NFP misses generate more downside compared to the upside on a stronger report and give a bid to stock markets. Higher-beta currencies like the commodity-dollars should be bought if this is the case.

Chart of the Day – NZD/USD near major support zone

A NFP miss will see more downside in the greenback as some of the Fed’s hawkish expectations are scaled back, even as the recovery story remains intact elsewhere. This will be seen more in currencies which are correlated to rising stocks and have more hawkish central banks. Step forward the CAD (which we covered yesterday) and NZD.

The kiwi has been the best performing commodity related currency so far in July with NZD/USD not pushing through the post-Fed lows at 0.6923. In fact, first support lies at the March and April lows around 0.6944, while the December 2018 and January 2019 highs also sit around where we currently trade, so this is now a strong support zone. If this holds, bulls need to push above the 200-day SMA at 0.7050 to slow the bearish momentum.