Financial market research and analysis

The US dollar took a dive on Friday as the labour data disappointed big in September. The US economy added 142’000 nonfarm jobs, last month’s 173K has been revised down by 37K. The unemployment rate remained stable at 5.1% yet the participation fell from 62.6% to 62.4%. The average hourly earnings stagnated. As a kneejerk reaction, the US dollar lost against all of its G10 peers. The US 10-year yields plunged below 2%.

Even if the market seemed confused following the softening in the US jobs market, the rout in oil and commodity prices and the slowdown in the global economy would, sooner or later, contaminate the economic recovery in the US.

Now there is nothing to be stressed about, the US will continue to live off the hog: the activity on the US sovereigns suggests less than 10% probability for a Fed rate hike in October and gives no more than 35% probability for a move in December.

If the US futures first plunged on worries that the Fed may still proceed with the first rate hike, traders came rapidly back to their senses. The US stocks rebounded to close the week on a positive note and there could well be opportunity in further recovery. Moreover, a pause in US dollar appreciation will certainly take off some pressure off the stocks.

Above 16500 mark, Dow Jones will break above September’s head-and-shoulders formation and could well step into a maintainable bullish consolidation zone.

Pound has room for recovery

Given that speculative activity boosted the long positions in the USD futures before the US jobs data, disappointment will certainly lead to the unwind of the shortest term odds. According to CFTC data, the pound futures turned net short over the last week and with the US dollar losing some of its shine, the short-maturity pound-sellers could soon start cashing in their chips. 

Cable is testing the critical resistance at 1.5250 level (Fib 50% over the last six months & support turned resistance) and the broad USD weakness, combined to an oversold pound market, suggests a good potential to clear this resistance. Break above 1.5250 could pave the way for the next key technical level, 1.5326 (200-day MA). The key support is eyed at 1.5100/1.5087.