Non-farm employment data put pressure on the US dollar, and the US dollar defense line collapses!

On the Asian session on Monday, the US dollar index hovered below the 99 mark. The weak employment data not only boosted expectations of interest rate cuts, but also put significant pressure on the US dollar. On August 1, the US dollar index fell 1.39% to close at 98.68, the largest single-day drop since April. This trading day requires attention to the monthly rate of factory orders in the United States in June and continue to pay attention to news related to the international trade situation and geopolitical situation.

Analysis of major currency trends

U.S. USD: As of press time, the US dollar index hovered around 98.82. After the non-agricultural data was released last week, the financial market responded quickly, showing a typical market dominated by "help aversion" and "loose expectations". The US dollar index fell rapidly after the data was released, with a drop of 0.42% at one point, reaching a low of 99.1899, setting a new intraday low. Technically, the 96.37 years low (July 1) becomes the next point of contention for DXY if the bears regain the upper hand. Once below, the index may attempt to move towards the February 2022 low of 95.13 (February 4), followed by the 2022 bottom of 94.62 (January 14). On the upside, the weekly top of 100.25 (August 1) became the immediate resistance level. The higher resistance level is Zhoufeng at 100.54 (May 29), followed by the 101.97 high on May 12.

Euro: As of press time, the euro/dollar hovered around 1.1565. The dollar suffered a heavy blow due to the employment report released by the United States (US) which was not as good as expected. The euro/dollar rose more than1%, which prompted investors to react, and the Federal Reserve is expected to cut interest rates twice. Wall Street continues its losses amid concerns about a slowdown in the U.S. economy. The July non-farm employment (NFP) data is expected to be weaker than June, but the downward correction in the first two months, stofoco.combined with last month's data, has driven the euro/dollar rise. Technically, the Relative Strength Index (RSI) rebounded from the near-oversold area and approached the neutral line. That is to say, if the breakthrough exceeds 50, it will confirm that the buyer controls the market. If the EUR/USD breaks through the 20-day simple moving average (SMA) of 1.1645, it is expected to rise to 1.1700. A further strong trend will bring the next key resistance to 1.1800 and the year-high 1.1830. On the other hand, if it falls below the 50-day SMA of 1.1576, the road to 1.1550 will be cleared, followed by the integer mark of 1.1500. The next area of concern will be the August low of 1.1391.

GBP: As of press time, GBP/USD hovered around 1.3267. GBP has now gained some new momentum, pushing GBP/USD back to the positive area above 1.3200, after the US dollar lost momentum sharply after the release of the US employment report. The GBP/USD hovered at a two-day high amid a sharp correction in the U.S. dollar index (DXY) rebounded from an earlier four-month low of about 1.3140, and investors appeared to have begun to reprice the Fed's possible rate cut at its September meeting. Technically, if the decline continues, the GBP/USD may first retest the July low of 1.3141 (August 1), followed by May support level 1.3139 (May 12). The continued decline may bring the critical 1.3000 threshold back into view. On the other hand, short-term resistance is at the 100-day and 55-day simple moving averages, at 1.3337 and 1.3505, respectively, followed by the weekly high of 1.3588 on July 24.

Summary of news from the foreign exchange market

1. Moody's Chief Economist: The US economy is on the verge of recession

Moody's Chief Economist Mark Zandi warned after a series of weak economic data released last week that the US economy is on the verge of recession. The latest indicators show that the economy is stagnating, consumer spending has stagnated, construction and manufacturing industries are shrinking, and employment is expected to weaken. At the same time, high inflation further stofoco.complicates the possible policy support from the Federal Reserve. The unemployment rate remains low, but mainly because labor force growth has stagnated, the number of immigrant labor force has decreased, and labor participation rate has declined. The current job market is undergoing a large-scale recruitment freeze, and average jobsThe decrease in duration is a signal of increased employment pressure. He attributed a large part of the current slowdown to Washington's policy choices, where tariffs are eroding corporate profits and household purchasing power, while reduced immigration limits the overall growth potential of the economy.

2. Switzerland is willing to make concessions to the U.S. trade proposal to reduce tariffs of 39%. Swiss Economy Minister Guy Parmelin said that in the face of Trump's announcement of import tariffs on Switzerland of up to 39%, the Swiss government is willing to readjust its trade proposals to the U.S. to find a solution. The Swiss cabinet will hold a special meeting on Monday to discuss the next response. "Time is tight, and it may be difficult to accomplish anything by August 7, but we will do everything we can to show sincerity and modify our proposals." He pointed out that Trump is concerned about the US-Rui trade deficit, which last year reached 38.5 billion Swiss francs (about 48 billion US dollars). Switzerland is considering increasing procurement of U.S. liquefied natural gas (LNG) as one of the potential mitigation options. Another option is to encourage Swiss stofoco.companies to further expand their investment in the United States, which is Switzerland's largest market in exports such as pharmaceuticals, watches and machinery.

3. The Bank of England is expected to cut interest rates again to focus on economic growth rather than inflation. The market expects the Bank of England to cut interest rates again on Thursday as tax increases and weak consumer confidence are dragging down the UK economy and prompting stofoco.companies to slow recruitment. The market generally expects that the Bank of England's Monetary Policy stofoco.committee will lower the benchmark interest rate by 25 basis points to 4%, continuing its pace of rate cuts once a quarter. In sharp contrast to the Fed's cautious attitude of continuing to keep interest rates unchanged this time, the Bank of England chose to ignore the fastest inflation growth rate in 17 months and instead focus on the hidden worries of economic growth. Previously, Britain's GDP shrank for two consecutive quarters, and the employment market has continued to weaken since the spring. The market is still closely monitoring the central bank's plans to reduce its holdings of treasury bonds. There are signs of pressure on long-term British bond yields in recent years, and the market speculates that the Bank of England may limit the scale of active sale of Treasury bonds.

4. Fed Williams talks about labor market cooling and treats the expectation of a rate cut in September with caution

Federal official and Powell ally Williams said, "The labor market conditions I have observed in the past year can be described as a 'moderate and gradual cooling', but the overall situation is still stable." Although the unemployment rate rose only slightly to 4.2% in July (4.1% in June), relatively weak non-farm data provided room for Powell to promote a consensus on interest rate cuts. Williams pointed out that the real focus of this report was the employment growth data in May and June. "This stofoco.comrmation is crucial and helps us understand the direction of labor supply and demand, as well as the cooling trend of labor market momentum." Williams is cautious about whether a rate cut may be cut in September and has not endorsed the market's once-high 80% rate cut expectations. He said: "The challenges faced by market participants, work with usThe same faced by policy makers. I think the direction of the market's response to signals is understandable. "Williams expects U.S. economic growth to slow to about 1% this year, but he believes that the economy is expected to rebound in 2026.

5. White House economist: Economic statistics agencies need a "new perspective"

According to AXIOS, senior White House economist Stephen Miran said that an important economic statistics agency needs a "new perspective", but he did not repeat President Trump's claim that there was political manipulation of Friday's employment data. Trump ordered the firing of the Director of the Bureau of Labor Statistics on Friday, after he claimed without evidence that the disappointing employment data was "manipulated." The bureau later The Bureau of Labor Statistics also announced a sharp correction of the data, showing that the number of jobs was 258,000 fewer than previously thought. This is the second largest downward correction on the record, second only to the corrections during the pandemic. Miran said: “It is definitely time to look at this issue with a new perspective and work to find solutions that improve data reliability and reduce corrections.” The agency should try to incentivize faster feedback or postpone the release of data for a week or two, if doing so reduces the extent of subsequent corrections. ”

Institutional View

1. Deutsche Bank: Eurozone inflation is expected to be higher than ECB's expectations

stofoco.commerzbank's VincentStamer said that in the stofoco.coming quarters, eurozone inflation may be higher than ECB's expectations, which reduces the possibility of further interest rate cuts. He pointed out in the report that the core annual inflation rate in July remained at 2.3%, but due to the high month-on-month increase, its decline may not be the same as before. "This is another reason why we think the ECB's forecast for overall inflation may be low," Stamer said, and expects overall inflation to be It will remain around 2% by the end of the year. He added that if inflation eventually exceeds the ECB’s expectations, the possibility of further interest rate cuts will be greatly reduced.

2. Dutch International Bank: The Canadian dollar may fall further

The U.S. imposes a 35% tariff on all Canadian products exported to the U.S., and the Canadian dollar fell to a 10-week low against the dollar. Francesco Pesole, a foreign exchange strategist at Dutch International, said in a report that the Canadian dollar may fall further, especially as Mexico receives another moratorium extension. Pesole said: "We believe the market continues to underestimate the downside risks of the Canadian economy. The tariff statement increases the risk of further rate cuts by the Bank of Canada. "Dutch International Group expects that the US dollar may reach 1.40 against the Canadian dollar in the near future.

3. Mitsubishi UF: Non-agricultural numberAccording to a strong dollar that will push the dollar back up again, but the gains are limited

Mitsubishi UFE analyst Derek Halpenny said that if the U.S. jobs data in July are strong, the dollar should strengthen further, but any gains may be limited. The good news about the U.S. economy has been largely reflected in the U.S. dollar price, which rose 3.19% against a basket of currencies in July, the biggest month since April 2022. The strong dollar gain in July does show that the positive news is better digested, which will limit the dollar's room for strength today. However, if non-farm employment increases higher than expected, the possibility of a rate cut in September may be eliminated.

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