A July move is a non-starter but the odds of a September rate cut are currently at ~80%. As for the year itself (four meetings left), a total of ~48 bps of rate cuts are being priced in. In other words, traders are seeing roughly two rate cuts by the Fed before year-end.

Looking at the balance of risks, I would argue that there is a strong sense that we could lean closer towards pricing in one rate cut rather than three rate cuts moving forward. Inflation developments still need to mark better progress, otherwise the Fed might continue to play down softness in other areas of the economy.

Meanwhile, I would say that the bar for the Fed to cut three times this year looks a little high. But one can argue that once they do get the ball rolling, there is a case to be made that they could continue to keep cutting in back-to-back meetings.

For now though, we’re not quite anywhere near that yet. It’s all about taking one data set at a time so let’s see what the jobs report today has to offer.

This article was written by Justin Low at www.forexlive.com.

Headlines:

• What NFP data could surprise the market?
• Labour party wins UK general election, beating 326-seat majority threshold in the Commons
• Bitcoin tumbles to its lowest since February as downside momentum intensifies
• Fed’s Williams: Still a way to go to reach our 2% target
• Germany May industrial production -2.5% vs +0.2% m/m expected
• Eurozone May retail sales +0.1% vs +0.2% m/m expected
• UK June Halifax house prices -0.2% vs -0.1% m/m prior

Markets:

• JPY leads, USD lags on the day
• European equities higher; S&P 500 futures flat
• US 10-year yields down 1.2 bps to 4.335%
• Gold up 0.3% to $2,364.04
• WTI crude flat at $83.85
• Bitcoin down 5.4% to $55,185

It wasn’t an exciting session as markets are caught waiting on the US jobs report later today.

The hangover from the US holiday yesterday isn’t helping, with a largely more tentative mood seen among FX as well during the session. The dollar is hanging in there after the more sluggish showing from the softer US ISM services PMI earlier in the week.

EUR/USD is marginally higher by 0.1% to 1.0820 while USD/JPY is down 0.3% to 160.80 on the day.

The pound barely reacted to the results of the UK general election, which went very much as expected. It was a complete domination by Labour and GBP/USD held steady at around 1.2770-80 levels for the most part.

Meanwhile, commodity currencies also barely moved with a range of 15 pips locking in USD/CAD, AUD/USD, and NZD/USD respectively.

It’s all on to the non-farm payrolls data next to see how that will shake things up before the weekend. Will we see a continuation to the flows after the US ISM services PMI? Or is the dollar going to have a chance to bounce back?

This article was written by Justin Low at www.forexlive.com.

• We still have a way to go to reach our 2% target on a sustained basis.
• We are committed to getting the job done.
• Uncertainty will continue to be the defining characteristic of the monetary policy landscape for the foreseeable future.

There’s nothing new here that he hasn’t already said recently.

This article was written by Giuseppe Dellamotta at www.forexlive.com.

Fundamental
Overview

After a couple of weeks of
consolidation, the S&P 500 this week found some footing and eventually
extended the rally into a new all-time high following the soft US Jobless Claims and ISM Services PMI reports.

Overall, the data didn’t
change much in terms of interest rates expectations, but it reinforced the view
that the Fed is going to deliver at least two rate cuts by the end of the year.
The soft-landing narrative is still the main driver of the market, and the data
is indeed backing it for now with ongoing disinflation and resilient economy as
we head into the easing cycle.

S&P 500
Technical Analysis – Daily Timeframe

On the daily chart, we can
see that after two weeks of consolidation, the S&P 500 reached a new all-time
high following some soft US data. From a risk management perspective, the
buyers will have a better risk to reward setup around the trendline. At the moment though, it’s hard to
envision such a big pullback unless we get some ugly US data.

S&P 500 Technical
Analysis – 4 hour Timeframe

On the 4 hour chart, we can
see more clearly the rangebound price action of the last couple of weeks with
the recent breakout. This is where the buyers are stepping in with a defined
risk below the resistance
now turned support to position for a rally into new highs. The sellers, on
the other hand, will want to see the price falling back inside the range to
position for a drop into the 5500 support.

S&P 500 Technical
Analysis – 1 hour Timeframe

On the 1 hour chart, we can
see that we have a bit of consolidation now around the 5587 level as the market
awaits the US NFP report. If we get bad data, the market might go into risk-off
and we will likely see the sellers piling in aggressively for a selloff into
the 5500 support.

The buyers will want to see
a good or benign report which could even lead to a dip-buying opportunity on a possible
pullback into the 5560 zone. The red lines define the average daily range for today.

Upcoming
Catalysts

Today we conclude the week with the US NFP report where the data is expected
to show 190K jobs added in June and the Unemployment Rate to remain unchanged
at 4.0%.

This article was written by Giuseppe Dellamotta at www.forexlive.com.

In the Asian session, Eamonn published a nice article on the range of estimates for today’s US NFP report. These ranges are important in terms of market reaction. Here’s what Eamonn wrote on this topic:

WHY THE RANGE OF ESTIMATES IS IMPORTANT

Data results that fall outside of market low and high expectations tend to move markets more significantly for several reasons:

• Surprise
  Factor: Markets often price in expectations based on forecasts and
  previous trends. When data significantly deviates from these
  expectations, it creates a surprise effect. This can lead to rapid
  revaluation of assets as investors and traders reassess their positions
  based on the new information.

• Psychological
  Impact: Investors and traders are influenced by psychological factors.
  Extreme data points can evoke strong emotional reactions, leading to
  overreactions in the market. This can amplify market movements,
  especially in the short term.

• Risk
  Reassessment: Unexpected data can lead to a reassessment of risk. If
  data significantly underperforms or outperforms expectations, it can
  change the perceived risk of certain investments. For instance,
  better-than-expected economic data may reduce the perceived risk of
  investing in equities, leading to a market rally.

• Triggering
  of Automated Trading: In today’s markets, a significant portion of
  trading is done by algorithms. These automated systems often have
  pre-set conditions or thresholds that, when triggered by unexpected
  data, can lead to large-scale buying or selling.

• Impact
  on Monetary and Fiscal Policies: Data that is significantly off from
  expectations can influence the policies of central banks and
  governments. For example, in the case of the NFP due today, a weaker
  jobs report will fuel speculation of nearer and larger Federal Open
  Market Committee (FOMC) rate cuts. A stronger report will diminish such
  expectations.

• Liquidity
  and Market Depth: In some cases, extreme data points can affect market
  liquidity. If the data is unexpected enough, it might lead to a
  temporary imbalance in buyers and sellers, causing larger market moves
  until a new equilibrium is found.

• Chain
  Reactions and Correlations: Financial markets are interconnected. A
  significant move in one market or asset class due to unexpected data can
  lead to correlated moves in other markets, amplifying the overall
  market impact.

WHY THE DISTRIBUTION OF FORECASTS IS IMPORTANT

Another important input in market’s reaction is the distribution of forecasts. In fact, although the range of estimates for the US unemployment rate today is 3.9%-4.1%, only 8.7% of forecasters see a 4.1% rate, while 71% expect 4.0% and 20.3% anticipate 3.9%.

This means that even if the unemployment rate prints within the range of estimates at 4.1%, it would still be seen as a surprise and trigger a big market reaction. I can see the market going into risk-off on a 4.1% unemployement rate.

For the Non-Farm Payrolls, although the range of estimates is between 140K and 250K, a number outside the 170K-230K range would be seen as a surprise.

Lastly, for the Average Hourly Earnings Y/Y, 66% of forecasters see a 3.9% figure, while 17.3% expect 4.0% and 17.2% a 3.8% reading.

This article was written by Giuseppe Dellamotta at www.forexlive.com.