Market Analysis

FED interest rate cut expectations growing ahead of May jobs report

Expectations are growing that the U.S Federal Reserve will cut interest rates ahead of the release of the May employment report from the American economy later today. The Non-farm payrolls job report will give a broad indication of the overall health of the United States employment situation, with most economists predicting that the United States economy created 185,000 new jobs last month.

On Wednesday, the U.S ADP private sector report drastically missed expectations, adding to the growing list of recent macroeconomic data misses from the United States economy. The ADP jobs report showed that just 27,000 new jobs were created last month, which marked the weakest U.S monthly private sector jobs report since May 2010 and also a massive deviation from the previous month, which showed 275,00 new private sector jobs added to the U.S economy.
Aside from the worse than expected ADP jobs report last month, the Federal Reserves preferred gauge of domestic inflation, core PCE, continued to fall short of the central banks 2.0 percent target, with a disappointing 1.6 percent annual increase. The ISM manufacturing report for May also recorded its weakest pace of expansion in the manufacturing sector since October 2016, with a sluggish 52.1 reading.
With the recent collection of weakening top-tier data points, the pressure is growing for a strong jobs number from the United States economy today to ease interest rate cut calls and also to alleviate pressure on the Federal Reserve. The U.S jobless rate is expected to stay unchanged at 3.6 percent, while average U.S hourly earnings are expected to have increased by 0.3 percent on a month-on-month basis.
The market reaction to the recent rapid deterioration in the United States macro data points has seen traders selling the greenback against most major currencies and investors moving into the safety of gold. The inversion of the yield curve in the United States bond market also highlights growing fears that the United States economy could actually be slipping into a recession.


USD/JPY Daily Mountain Chart Source ActivTrader Platform

USD/JPY Daily Mountain Chart | Source: ActivTrader


The U.S Dollar has started to stage a minor comeback against the Japanese yen after falling towards the 107.70 level earlier this week, bulls still need to stabilize the pair above the 109.00 level to negate the extremely bearish short-term technical outlook. Key intraday support is now found at the 108.00, 107.70 and 107.40 levels, while key near-term technical resistance is found at the 109.00 and 109.40 levels, with extended intraday resistance at 109.90.


Written by Nathan Batchelor, External Analyst, ActivTrades

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