The US employment data turned out to be weaker than forecasts (235 thousand against the forecast of 733 thousand). Now, the announcement of the start of withdrawal from the QE program at the Fed meeting on September 22 is almost excluded. Most likely, two positive reports will now be required (in October and November), which makes the announcement of the curtailment of QE in December very possible.
It can be assumed that the weak employment report is just one of the signals, and perhaps, not even the main one. A lot indicates that the peak of recovery after the start of large-scale vaccination and the opening of the economy is already over and the world is waiting for another wave of crisis, which may be even deeper than the previous one.
After a strong recovery in the first half of the year, PMIs are slowing down globally without exception.
The CFTC report published on Friday showed a steady trend in both the growth of the short position on the euro and the growth of the long position on gold, which is usually a sign of an impending increase in tension and an increase in demand for protective assets. For major currencies, the CFTC report also showed negative dynamics for commodity currencies – the positions of CAD, NZD, AUD worsened, but the euro, franc, and yen at least remained at their own or slightly improved. These are signs of increasing tension.
The global credit momentum (the volume of credit as a share of GDP) is declining in all jurisdictions, and now, it is at its lowest since 2008, which also indirectly indicates the loss of the dynamics of the global economic recovery.
The probability that risky assets will not be able to take advantage of the delay in exiting QE is growing. This week, an increase in demand for protective assets is likely, which means that the US dollar will resume its growth after a pause.
EUR/USD
EU's GDP is still about 3% lower than the pre-pandemic levels contrary to the US and China. Good growth in Q2 is not confirmed by surveys such as IFO and Gfk, retail sales are not rising above pre-crisis levels (in July -2.3% mom and 3.1% yoy, worse than in June), and real disposable incomes of the population, despite serious stimulus measures, are also not growing. In June, industrial production in Germany and France was still below the pre-pandemic level.
The CFTC report on the euro turned out to be neutral and optimistic. The dynamics of German government bond yields also turned out to be slightly better than those of similar US Treasury, which together allowed the estimated price to go above the long-term average. It is not yet possible to say that a reversal has occurred, but the chances of an upward correction after Friday's weak Nonfarms have become noticeably higher.
The ECB will have a meeting on September 9. Recently, the ECB Chairman has changed the tone of comments to more hawkish, and the markets are almost sure that it will adjust plans at the next meeting to start winding down QE sooner rather than later. The weak Nonfarm data was confusing, so now, the markets need to understand first how the Fed is going to interpret the growth of average wages with a simultaneous slowdown in overall employment. Therefore, the ECB needs to find arguments again in order to sustain a pause.
It can be assumed that EUR/USD may rise as part of the correction to the resistance zone of 1.2000/10, but long-term growth is almost ruled out, and the ECB will find the right words to extinguish the bullish momentum on Thursday.
GBP/USD
Markit slightly lowered the PMI index in the UK services sector (55 against 55.5 in July), but for now, it is necessary to assume that the country's economy continues to recover without any special obstacles. Important macroeconomic data is not expected until Friday, the internal background remains calm. The Treasury is going to adjust pension payments downward, which may lead to a slight decrease in consumer demand. At the same time, the Scottish government intends to strengthen calls for a referendum. These events will put moderate pressure on the pound.
The target price failed to rise above the long-term average, although the short-term forecast for the pound was slightly better.
The pound was not able to rise to the resistance zone 1.3910/20. The bearish advantage was not canceled, so the continuation of sales is a more likely scenario than the continuation of growth. Another short upward impulse is possible. In this case, selling will resume as it approaches resistance level of 1.3980.