MARKETS WORRY ABOUT THE YIELD CURVE AND STRONG DOLLAR

This was in response to yesterday’s jobs numbers from Automatic Data Processing (ADP) that showed that more than 230K people were employed in September. This was against the 187K traders were expecting. Traders are now waiting for the official government data, which will be released tomorrow. Traders expect the NFP to be at 187K and the unemployment rate to drop to 3.8%. They also expect wages to gain. Today, data from the Labour Department showed that the initial jobless claims fell to 207K. This was better than the 211k that traders were expecting. Continuing jobless claims also fell to 1,650K which was lower than the expected 1,665K. Meanwhile, data from Challenger showed that US employers were planning to lay-off 55.3K people in September. This was a higher number than the 38.5K traders were expecting.

The yields of US treasuries rose sharply today. The ten-year rose by 1.72% while the two-year rose by 1.14%. The spread between the two narrowed to 0.678. In Japan, the 10-year yield rose to 0.159 percent, the highest level since 2016 while German Bunds rose to 0.537 percent.

The world markets fell today as the concerns about the yield curve inversion. The most affected markets were in the emerging markets where the MSCI EM index fell by 2%. This is the biggest index that captures 24 of the world’s biggest Emerging Markets. Similarly, the EM currencies continued to weaken with the Turkish Lira, Indian Rupee, and Indonesian Rupia extending previous losses. In Asia, the Hang Seng and Nikkei fell by 1.75% and 0.70% respectively while in Europe, the DAX and Stoxx fell by 0.25% and 0.05%. US futures pointed to a sharp decline in the Nasdaq, S&P and Dow. These declines were partly attributed to a shocking article by Bloomberg that detailed how China had infiltrated Apple and Amazon products through a small chip. This revelation will be received well by Donald Trump who has accused China of illegal business practices.

The sterling strengthened against the USD even after disappointing economic indicators. Data on vehicle sales showed that the number of cars sold in the UK fell sharply in September. The numbers from the Society of Motor Manufacturers and Traders showed that the September registrations of new cars fell to 338,834. This was 87K lower than in September last year. The sharp decline was attributed to the new worldwide emissions standards.

EUR/USD

The EUR/USD pair declined to an intraday low of 1.1460. It then rose slightly to a high of 1.1500 as traders waited for tomorrow’s official employment numbers. Still, the double EMA continues to show that the pair will continue to go down as shown in the four-hour chart below. This is confirmed by the Bollinger Bands, the MACD and the On Balance Volume indicator as shown. If it does continue downwards the pair will likely continue to fall to 1.1300.

GBP/USD

The GBP/USD pair declined to the 1.2918 level, which is close to the 38.2% Fibonacci Retracement level. It then started to rise, reaching an intraday high of 1.2995, which is above the 50% Fibonacci level. The Parabolic SAR and the Ichimoku Kinko Hyo on the four-hour chart show that the pair could continue to decline. The same is shown by the momentum indicator. If it does, the pair will likely test the 1.2820 support level.

USD/JPY

The USD/JPY pair moved closer to the important 114.744 level today. This is the highest level since November 2017. Today, the price moved to a high of 114.53. This level is above the 200-day moving average. The short-term and long-term EMA show that the pair could continue the upward momentum. However, traders should monitor the pair closely before placing any buy trades. This is because a strong downward trend is likely to start. The pair could also see a minor reversal.