Morning Note: NFP Weakness Could Pressure USD While Gold Continues to Climb

Another low reading for the US NFP (12:30 GMT)?

This week, the US has been delivering its job numbers and to wrap-up the week, the country is releasing its most anticipated jobs report, which is the non-farm payrolls. The figure delivered will be for May, however, the market is forecasting another drop, which would be the second one in a row. If that’s the case, we may see some weakness in the US dollar, and possibly a short-term hit of the US indices. That said, this could be just an impulse from the bears and the indices might rebound back up on the increased probability of a rate cut by the Fed. A lower NFP number might benefit President Trump, as he continues to apply pressure on Mr Powell to cut interest rates.

This week we also received other important US job figures, such as JOLTs job openings, which came out higher than initially expected. The ADP employment change was not as exciting for the bulls, as it failed to beat even the previous number of 60k, showing up at a low 37k. Today’s NFP becomes somewhat of a coin toss, which market participants will be heavily monitoring.

USDCHF technical outlook

From around the beginning of February, USDCHF has been moving south, while trading below a medium-term downside resistance line taken from the high of the 3rd of February. Given the NFP release today, we will stay sidelined, at least for now.

A drop below the 0.8156 zone, which is the current lowest point of June, could open the door for a move to the current lowest point of this year, at around 0.8038. However, if that area fails to provide strong support and breaks, this will confirm a forthcoming lower low, and place USDCHF into the territory, which has not been tested since January 2015.

For us to shift our attention to higher levels, a break of the aforementioned downside line would be required. This may lead to a change in the direction of the current trend, possibly sending the rate to the 0.8476 hurdle, or even to the 0.8673 area, marked by the high of 7th of April.

Could gold travel back to its all-time highs any time soon?

Gold saw a recent increase in buying interest, as economic instability reemerged, due to tariff wars. Also, the Federal Reserve raised the commodity’s safe-haven status ahead of the NFP numbers. The precious metal is gaining interest again, as we are starting to see economic slowdown, as countries are delivering lower productivity numbers through their PMIs. Recently, we saw Chinese Caixin manufacturing and US service PMIs coming out lower and falling into contraction territories. All this is slowly scaring off investors out of the equity world, putting them on the path of searching for safe-havens.

Gold technical outlook

After a strong push to the upside on Monday, which led to a break of the upper side of the short-term downside channel that gold was trading in from the end of April, the commodity now is showing willingness to move further north. At the same time, the precious metal is trading above a short-term upside line, drawn from the low of 15th of May and this week’s candlestick pattern seems to be forming a bullish flag. Although these are all positive signs, we would prefer to wait for another confirmation break above the 3383 barrier, marked by Monday’s high.

A break above that barrier may attract more buyers into the game, possibly clearing the way to our next key resistance area, around the 3430 area, which acted as a temporary strong area of resistance back in April and May. That said, if it is no match for the bulls, a break of it could clear the way towards the current all-time high, at 3500.

In order to get slightly more comfortable with the short-term downside scenario, we would need to see a rate-drop back below the previously mentioned upside line and the upper side of the broken falling channel pattern. This may send gold towards the 3245 obstacle and the 50-day EMA. If that area fails to hold, the next possible target might be near the 3120 level, marked by the lowest point of May.

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