US Dollar & Indices Resume Upward Momentum; US Non-farm Payroll Under the Spotlight

By: Miguel A. Rodriguez

12:09, 07 October 2022

Investors focus on today's US labor market figures, which are expected to show a non-farm payroll figure of 250k and a 3.7% unemployment rate.

Today, figures for the US labor market will be released.  

This is an important fundamental economic event that will influence the Federal Reserve's monetary policy decision. 

As is the case in this market scenario, a negative labor market figure, that is, a lower number of non-farm payrolls and/or an increase in the unemployment rate, would be welcomed by the stock markets because it would signal a potential slowing of the Federal Reserve's rate hikes. 

Conversely, if today's employment figures show a still tight labor market, this could precipitate a return to risk aversion, with stock markets falling.  

Therefore, all investors' attention will be focused on this figure today, which is expected to show a non-farm payroll figure of 250k and a 3.7% unemployment rate. 

Another important component of this economic data will be average hourly earnings, which are expected to rise by 5.1%. The Federal Reserve's goal is to prevent wage tension from causing an inflationary spiral; thus, the lower this figure, the better the performance of the stock markets. 

Despite yesterday's decline, the indices remain in positive territory for the week, thanks to the bullish momentum seen in the first few days. 

S&P500's most important technical level is around 3,900. This level corresponds to the lows reached in early September, and a move above it would signal the beginning of the end of the uptrend that began in mid-August. The US dollar has resumed its upward momentum after several days of a downward correction in the foreign exchange market.    

Because the US dollar has a high correlation with market interest rates, only a fall in these could end the current upward trend of the US currency. This would only happen if employment and growth data showed signs of deterioration. 

Following an upward correction that took it to the top of a well-defined bearish channel, EUR/USD has resumed its downward path with targets below recent lows. The main factors putting pressure on the single currency are Europe's weak economic and geopolitical situation and the ECB's delay in raising interest rates. 

Sources: Bloomberg, Reuters 

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