The reaction of the market to the US employment report shows that the report was generally perceived negatively – 10-year UST yields declined to 1.42%, stock markets increased, and the dollar index fell. The growth of stock indices means a decline in the probability of some hawkish actions in the near future, while the fall in yields reflects a change in the rate forecast in favor of shifting the first increase further into the future.
Despite the fact that the growth of new jobs was formally higher than forecasted (+80 thousand against +720 thousand), the unemployment rate increased (5.9% against the expected 5.6%), and in general, the loss of jobs relative to the last pre-pandemic month, namely February 2020, is 6.8 million. This is well below what the Fed expects "significant progress".
At the same time, it should be noted that the net losses of Total Nonfarm do not quite adequately reflect the depth of the problem. The ratio of the number of jobs created to the number of people falling out of the workforce is much more informative – this ratio has been falling over the past 20 years, that is, it is necessary to create significantly more jobs than even before the pandemic level to normalize the labor market.
The weakness of the report is also reflected in the dynamics of the commodity market – aluminum added 2%, copper also did so by 0.6%, oil is growing a little less strong, but there is another reason – OPEC countries will still try to decide whether to extend the production cut or not and so, the reaction for oil is postponed.
The CFTC report was not very informative, but it also generally corresponds to a weaker than a stronger dollar. Commodity currencies such as CAD and AUD slightly improved their positions, but on the contrary, CHF and JPY worsened. Meanwhile, gold is almost unchanged, which can be interpreted as a decrease in demand for protective currencies, which also includes the dollar.
Most likely, the US dollar will start a new wave of weakening. Much will depend on the ISM services sector report on Tuesday, as well as the FOMC meeting minutes on Wednesday.
EUR/USD
Euro's net long position is slightly reduced again. The target price is directed downward, so a further decline is very possible.
Technically, the euro is near the support level of 1.1770/80, where the lower border of the triangle passes, and if the US dollar's weakness is confirmed in the coming days, then a base with an upward reversal will be formed approximately in this zone. In the meantime, it can be assumed that the breakdown of the support of 1.1770/80 is more likely than an upward pullback. There will be an exit down from the triangle, followed by testing the strength of 1.1704.
This scenario will become more likely if the United States manages to pass a decision on the adoption of a minimum corporate tax rate of 15% at the G20 summit on July 9-10. Such a decision will be perceived as an indicator of the strength and will increase the demand for the US dollar. We should also pay attention to the publication of the ZEW index on Tuesday, which will be released simultaneously with the retail sales report and can increase volatility.
GBP/USD
The UK is preparing for the opening of the economy on July 19. Apparently, the threat from the new strain of Delta coronavirus does not look so serious that it makes adjustments to the already approved plan.
The pound is stable in the futures market after a strong sell-off a week earlier. The CFTC report showed minimal weekly changes and the target price is below the long-term average, which indicates the development of negative dynamics, but the impulse is weakening.
The removal of coronavirus restrictions according to the approved plan will be crucial, as long as the Johnson government remains optimistic. Meanwhile, the Brexit negotiations have receded into the background and do not have a significant impact on the quotes.
On Friday, a large package of data will be published, including the trade balance, industrial production, and the NIESR forecast for GDP growth.
It is assumed that it is not yet time to buy the pound sterling. The bearish impulse may develop, with the nearest target set at 1.3670. The more important one is the support zone 1.3510/30. On Monday morning, the demand for risk increased after last Friday's weak Nonfarm data, but it is unlikely to help the pound to continue its growth.
