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The FxPro Analyst Team

Forex: Nonfarm Payroll Brightens The U.S. Economic Outlook

The Nonfarm payroll (NFP) figure released last Friday rose by 255.000 in July, far surpassing the expectation of 180.000. Meanwhile, the figure in June was revised from 287.000 to 292.000. The NFP figures have been robust for two consecutive months. The unemployment rate in July remained at 4.9%.
Average hourly wage for private-sector workers increased by 0.3%, from June to July to $25.69, YoY hourly wage rose by 2.6%, gaining at the fastest pace since 2009. The average weekly working hours in July was up 0.1 hour to 34.5 hours.

The robust NFP figure pushed stock prices up, weighing on other currencies and safe havens.
The dollar future index surged from the intra-day low of 95.48 to 96.49, increased by 101 points, or 1.06%, breaking out the resistance at 96.

The S&P 500 spot index rallied from 2164.56 to a record intra-day high of 2182.3, a 0.82% rise, reaching a second record high this year, and closing at an all-time high of 2181.52.
The Dow Jones spot index rallied from 18361 to 18533, a 0.94 % rise.

The robust NFP figure weighed on gold, gold spot price plunged from 1364.61 to 1334.67, falling by 2.24%, breaking through the significant support levels at 1350 and 1340. However, loose monetary policies, stimulus measure, and negative interest rate implemented by some central banks provide a support to gold prices. The biggest global gold ETF, SPDR Gold Trust, has also enlarged their gold position 0.73% to 980.34 tons until last Friday. Gold will likely trade in a range bound. The significant resistance at 1375 will not be broken easily in the short term, unless boosted by significant economic data or monetary policies.

After the release of NFP, the Chicago Board Options Exchange’s (CBOE) VIX fear index fell to a 2-year low of 11.8 points. The index is used for measuring expected stock market volatility and investor fear. The fall suggests that the market concerns over corporate earnings and the economy are eased. As a result, the risk-on sentiment is boosted, spurring investors turn to risk assets from safe havens.

The strengthening of the labour market gives rise to the increase in consumer spending, a potential rise of inflation rate, and the market expectations for a rate hike in September.

Yet a series of economic data in the past few months have given a mixed signal, such as the appallingly low Q2 GDP figure, it seems to be a bit early for the Fed to raise rates in September. If the consequent economic figures show a continuous and healthy economic recovery, then it will be more likely that a rate hike may happen in December.

DAX rallied this morning as helped by the positive figure of German Industrial Production, jumping from 10364.78 to 10460.65, near the previous high of 10473.40, which is the significant resistance zone, bewaring of a pullback.

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