The US workforce is finding its road towards employment as the unemployment rate drops below 4%

Forex Signals US Session Brief May 04 – US Employment Report Is Back in Focus

Posted Friday, May 4, 2018 by
Skerdian Meta • 3 min read

Today’s US employment report is to be released shortly. This report is quite important when it comes to market’s reaction,  but now it has become even more so. We will explain why below. Cryptocurrencies resumed the uptrend yesterday and they are stretching it further today, especially Ethereum.

The Employment Report Is Even More Important Now

The US employment numbers in themselves are somewhat important since they are a leading indicator of any given economy. Although, I have rarely seen the employment figures move markets in the last year, unless there was a major deviation from expectations.

We have seen the same happen with the unemployment rate. The unemployment rate had declined until several months ago, but the market hadn’t really noticed it. The US Dollar has been on a downtrend for the entire year last year. In the last two months, expectations were that there was going to be another decline in the unemployment rate, from 4.1% to 4.0%. But, it hasn’t moved. Today expectations remain the same, although we will see if unemployment will meet the new expectations.

The most important aspect of this report has undoubtedly been earnings. The average hourly earnings, or wages and salaries as I like to call them, have been weak compared to other sectors in the US economy. They have been keeping inflation subdued, so altogether, they have been keeping the FED alert. The FED doesn’t want to hike interest rates too fast, otherwise they might give wages and inflation another hit.

Why are wages now more important than a month ago?

On Wednesday, the FED held their meeting. The market was expecting some hawkish comments, but they decided to wait and see. Until a few months ago, the US economy has picked up and the FED started to get more hawkish. This had an impact on interest rates in December last year and again on March this year.

They also increased their outlook of the economy for the next couple of years. So, we were expecting to see new FED Chairman Powell deliver some hawkish comments. But, the FED left the decision to economic data. They revisited the data and the two missing pieces of the fundamental picture are the wages and inflation, that’s why today’s data is even more important than before.

Cryptocurrencies Continue to Grind Higher

Cryptocurrencies made a reversal last month when they reached the 50 SMA on the weekly chart. The major cryptos have been moving together as a pack with little difference between each other, so the overall picture remains the same for all of them. They were trading on a strong bearish trend for a few months, but the trend started to reverse when they met the 50 SMA, as you can see from the Bitcoin chart below.

Since then, the trend has been pretty straightforward. As you can see, all weekly candlesticks are bullish. I wasn’t sure at first that the trend had changed but five consecutive weeks of gains leave no room for doubt now.

The stochastic indicator is heading up and still has room to grow, so Bitcoin is not overbought yet. If you switch to the H1 or the H4 chart, you can see that the trend stalled last week. Although, yesterday and today the uptrend has resumed. How do you know if the uptrend has resumed?  If the price breaks previous highs, then the bulls are in control, which means the uptrend is back in place.

Bitcoin is trending up now, but it faces one major obstacle. The 20 SMA (grey) has provided solid support throughout last year. Bitcoin never dipped below it but it got broken earlier this year. We are heading towards it now so the chances are that it will now turn into resistance. Will it end this uptrend? No one knows, so we have to watch the price action up there. This is all about the employment report for now, so let’s concentrate on foresights.

The 20 SMA is waiting above

Trades in Sight

Bearish GBP/USD

  1. The trend is massively bearish
  2. The support at 1.3650 has been broken
  3. The 50 SMA is providing solid resistance

The 50 SMA looks good enough for sellers

This forex pair has turned extremely bearish now, so all trades here must be short on GBP/USD, until the trend reverses again – if it does at all. The 50 SMA (yellow) has been pushing the price down, so it looks like a good place to go short from. I’m not touching this forex pair now because the US employment report will be out in a minute, but the bias is strongly bearish.

In Conclusion

The US employment report has just been released and it leaves mixed feelings. Employment is up, the unemployment is down while the wages are down as well. This is confusing to trade on. Let’s post this midday brief quickly and see the report in details guys.

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About the author

Skerdian Meta is our Lead Analyst
Skerdian Meta Lead Analyst. Skerdian is a professional Forex trader and a market analyst. He has been actively engaged in market analysis for the past 11 years. Before becoming our head analyst, Skerdian served as a trader and market analyst in Saxo Bank's local branch, Aksioner. Skerdian specialized in experimenting with developing models and hands-on trading. Skerdian has a masters degree in finance and investment.
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