In review of recent data points, last Friday (7/7), we saw a strong US Payrolls readout on Friday, 222K vs 170K exp; 4.4% rate vs 4.3% exp; wages 0.2% vs 0.3% exp. If there was a weak spot in the report, it was wage growth, holding flat m/m at 0.2% and 2.5% y/y, also flat from May’s reading. However, the Fed’s Labor Market Conditions Index did miss expectations the following morning (1.5 vs 1.8 exp and 2.3 prior) due to the softer/flat reading in wage growth. This morning’s softer reading on y/y PPI (1.9% vs 2.4% prior), will perhaps set the tone for a softer reading on US Consumer Price Index (CPI) due out tomorrow morning. Inflation data seems to have the Federal Reserve’s attention lately. This was highlighted in Janet Yellens recent testimony to the House Financial Committee where she further expressed concern over the lower levels of inflation (dovish), however expects modest economic expansion over the next few years (neutral to hawkish). The market reaction (SP500 +1.0%, while 10yr Yield dropped 5bps) was as if she pulled away from her recent hawkish rhetoric and pivoted back towards a more neutral to dovish stance. As it’s widely expected that the Fed will raise interest rates 1 more time this year, the window for 2 more hikes is steadily closing. The currency markets, specifically the USD vs EUR trade has largely been bearish immediate term trade and trend, however is likely approaching oversold territory. We still expect softer readouts on inflation in the immediate future, which could continue to pressure the USD trade, however favor selling rallies in the immediate term until a “hard” bottom has been forged on the charts. Inversely, we did see the Euro Currency flash immediate term overbought Tuesday afternoon with a quick breach of the 1.1500, however the bullish immediate term trade and trend is undeniable. European economic data points have been strong ytd, and recommend actively managing the 1.1200 – 1.1500 trading range in the near-term.
Sept Euro Weekly Resistance Level (Note the black line expressing fairly sturdy resistance)