FX.co ★ 05.08.2022: USD rallies while Wall Street in nosedive (S&P500, USD, CAD, Bitcoin)

05.08.2022: USD rallies while Wall Street in nosedive (S&P500, USD, CAD, Bitcoin)

Are you ready for a roller coaster on Wall Street? This New York session is going to be highly volatile. Let’s discuss what is going on!

The benchmark indices had a quiet session on Thursday. Wall Street investors watched a plunge in oil prices and anticipated fresh nonfarm payrolls. The Dow Jones edged down 0.26%. The Nasdaq climbed 0.41%. The S&P 500 closed almost flat at 4,152. The major indices traded slightly higher in the New York pre-market. However, in the early session, they went down in sync. The S&P 500 is expected to trade in the corridor between 4,030 and 4,110.

Wall Street fluctuated quietly yesterday as the market awaited the crucial government report on the US labor market. Analysts had projected 250,000 new jobs in the US private sector and a flat unemployment rate at 3.6% in July. The actual data differs greatly from the expected ones.

The US economy created 528,000 jobs last month, much higher than the forecast, from the upwardly revised 390,000 jobs in June. The overall employment excluding agriculture increased by 22 million jobs since the pandemic low in April 2020 and improved to pre-pandemic levels.

Besides, the jobless rate inched down to 3.5% in July, the lowest figure since February 2020, from 3.6% a month ago. Analysts had predicted a flat reading. The number of people out of work declined to 5.7 million.

Earlier this month, the US GDP logged contraction for the second month straight that fits the definition of a technical recession. The strong employment growth affirms quite the opposite. Such robust hiring paints a picture of a healthy economy.

The strong labor market might assure the Federal Reserve to venture the third rate hike by 75 basis points at the nearest meeting in September. However, a lot will depend on inflation metrics. Last week, the US central banks raised the funds rate by 75 basis points. So, the key interest rate has increased by 225 basis points since March.

Immediately after the nonfarm payrolls, futures on the US stock indices went down firmly.

As for the season of corporate records, Refinitiv estimated that 77.1% of 410 companies included in the S&P 500 reported higher-than-expected financial results. It set the stage for a rally in the S&P 500 and the Nasdaq. Both indices have been growing for three weeks in a row. Nevertheless, in light of the fresh economic data, all gains could be negated. Indeed, the success of some companies will hardly refrain investors from emotional sell-offs.

So, the upbeat nonfarm payrolls are a nightmare for stocks but a paradise for the US dollar. Its index had been losing ground since the US GDP data and was trading flat at around 105.7 earlier today. In response to the strong employment data, the index climbed a whopping 1.1% to trade at 106.8. It is likely to trade in the intraday corridor between 106.3 and 107.2.

Now the market understands that the US Fed has a weighty argument for another aggressive rate hike.

Federal Reserve Bank of Cleveland President Loretta Mester made a hawkish statement on Thursday that the central bank should raise interest rates above 4% to push inflation down to the target level of 2%.

Earlier this week, Fed’s policymakers said that the regulator is determined to pursue the same aggressive monetary tightening. Now in light of the red-hot employment statistics, there is no doubt that the Fed will hardly pause and moderate the pace of further rate hikes.

The loonie has no chance to defend amid the greenback’s rally and a fall in oil prices. The USD/CAD pair is trading higher at about 1.2978 at the moment of recording this video. The pair is likely to hold in the corridor between 1.2920 and 1.3010 today.

Yesterday, WTI dropped 2.44% to trade at 88.45 dollars a barrel. Brent crude tumbled 2.83% to trade at 94.04 dollars a barrel. Oil quotes were in a nosedive for the most of the day but the strong nonfarm payrolls proved that recession fears could be exaggerated.

Today Canada also reported on its labor market. The data showed that employment unexpectedly contracted in July.


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*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade
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