Mass hysteria is taking over the markets

The US Employment data for July which was released on Friday, appear to have sparked major concerns about a potential recession. In particular, the unemployment rate unexpectedly ticked up by 0.2% from 4.1% to 4.3%, in addition to the Nonfarm Payrolls figure coming in lower than expected at 114k, tended to imply that the US labour market is loosening faster than anticipated by market participants and thus the decision by the Fed to keep interest rates steady on Thursday, may further tighten the noose surrounding the US economy. As such, we emphasize the release of the US ISM non-manufacturing PMI figure for July which is set to be released today. Should the figure come in as expected or higher, implying an expansion in the non-manufacturing sector of the US economy, it may alleviate some concern about a possible recession. In our view the market may be overreacting to the financial release on Friday, yet we do have some concerns in regards to the resilience of the US economy.The RBA’s interest rate decision is set to be released during tomorrow’s Asian session. The bank is widely anticipated to remain on hold, with AUD OIS currently implying a 73.7% probability for such a scenario to materialize. As such we turn our attention to the banks accompanying statement in which should policymakers showcase an unwillingness to cut interest rates, it may be perceived as hawkish in nature which in turn may aid the AUD. On the flip side, should the accompanying statement hint at fears of a potential recession it may be perceived as dovish in nature which may weigh on the AUD.Over in Japan the Nikkei is down by 13% and is nearing seven-month lows.

XAU/USD appears to be moving in a sideways fashion. We opt for a sideways bias and supporting our case is the RSI indicator below our chart which currently registers a figure near 50, implying a neutral market sentiment. However, we would also like to note that our upwards moving trendline which was incepted on the 25^th of June has not been clearly broken. Nonetheless, for our sideways bias to continue, we would require the commodity to remain confined between the 2390 (S1) support level and the 2470 (R1) resistance line. On the flip side for a bearish outlook we would require a clear break below the 2390 (S1) support level with the next possible target for the bears being the 2330 (S1) support base. Lastly, for a bullish outlook we would require a clear break above the 2470 (R1) resistance level with the next possible target for the bulls being the 2520 (R2) resistance line.

WTICash appears to be be  moving in a downwards moving fashion. We maintain our bearish outlook for the commodity and supporting our case is the RSI indicator below our chart which currently registers a figure near 30 implying a bearish market sentiment. For our bearish outlook to continue, we would require a clear break below the 71.50 (S1) support line with the next possible target for the bears being the 64.10 (S2) support line. On the flip side for a bullish outlook, we would require a clear break above the 78.00 (R1) resistance line, with the next possible target for the bulls being the 83.45 (R2) resistance level. Lastly, for a sideways bias we would require the commodity to remain confined between the 71.50 (S1) support line and the 78.00 (R1) resistance level.

Other highlights for the day

Today in the European session, we get Turkey’s CPI rate, France’s  and Germany’s services PMI figures following by the Eurozone’s composite PMI figure all for the month of July, followed by the zones sentix figure for August and the UK’s composite PMI figure for July. During today’s American session we would like to note  the US’s final Composite and Service PMI figures for July and ending off the day is the US ISM Non-Manufacturing PMI figure for July. In tomorrow’s Asian session we would like to highlight the RBA’s interest rate decision.

XAU/USD 4H Chart

• Support: 2390 (S1), 2330 (S2), 2275 (S3)
• Resistance: 1.2860 (R1), 1.2927 (R2), 1.2990 (R3)

WTICash Daily Chart

• Support:  71.50 (S1), 64.10 (S2), 57.30 (S3)
• Resistance: 78.00 (R1), 83.45 (R2),  89.50 (R3)

If you have any general queries or comments relating to this article please send an email directly to our Research team at research_team@ironfx.com

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