Strong US NFP enough to postpone Fed Rate Cut?

June 2019 payroll numbers came out better than expected, with the US adding 224,000 jobs beating the expectations of 162,000 jobs. Financial media talking heads were quick to point out that this would postpone the Federal Reserve Interest Rate cut expected in July.

So will it? It seems the jobs data does not paint out the whole picture.

Essentially, the data did not change the overall trajectory of job and economic growth in the US. Remember, we have had months of bad economic data. Generally this would be seen as stock market negative, however, as I have argued, many are expecting the Fed to cut rates to keep assets propped. There will be nowhere else to go for yield other than stocks.

Many analysts still expect the Fed to cut this month, but to be honest, if you are a long term/swing trader it does not matter when they cut. We know they will.

The Bond market is already pricing in rate cuts. The Fed will have to act sooner rather than later. What is boosting the stock markets given bad economic data? The market is front running the Fed cutting rates to provide cheap money to keep stocks propped.

It is not the promise of a China deal. I have argued in the past that this deal will not be made anytime soon, and President Trump’s Achilles heel is the US stock markets. As long as he gets lower rates, and markets continue higher, the President can continue to hold out on a deal with China while maintaining a strong probability that he will win the next election in 2020.

Speaking about China, on Friday the Chinese said that there could be no resumption of talks and a deal unless the US drops tariffs first. President Trump promised to not raise tariffs on China, but it seems he may have to if the Chinese do not come to the table. Puts the President in a tough spot. If he drops tariffs, he may appear to be weak, but if he raises tariffs, he went against his word and the US stock markets will likely act negatively.

I do argue however that long term, the markets really only care about Fed rate cuts and cheap money. Again, there will be nowhere to go for yield other than the stock markets. As yields move lower, bonds for yield don’t seem as a good idea (even though many pension funds will still have to purchase them).

Fed chair Jerome Powell will have a busy week. He has a speech and will also be testifying. Of course everyone will be listening in to hear his rhetoric to estimate when the Fed may cut rates if they decide to hold off this month.

The Bank of Canada is up for this week, with Canada expected to hold interest rates at 1.75%. The BoC will likely wait for the Fed to cut rates first before they follow along…however Australia has cut twice due to real estate issues, and as someone living in Vancouver, I have heard stories on how difficult it is to get a mortgage right now and how slow the real estate market is in Vancouver. Even when rates begin to go down, many will just wait for the final cuts in the cycle which may keep real estate subdued until then.

  • Tuesday: Fed Chair Powell Speech
  • Wednesday: BoC Rate Decision, US FOMC Minutes, Fed Chair Powell Testifies, Chinese CPI (June), ECB Non-Monetary Policy Meeting.
  • Thursday: Fed Chair Powell Testifies, US CPI ex Food and Energy (June), EUR Harmonized CPI (June).

US equities made all time new highs during the Independence Day week. You cannot script it better than that. Just looking at the 4 hour chart, I am seeing what could be some weakness. I am watching the flip zone which is marked on the chart (also new support where prices broke out to make all time highs).

So what do I see? If price does retest that zone, and then makes a lower high, we can see a head and shoulders pattern. If the market believes the Fed will NOT cut rates soon, we may be seeing a pullback.

Again, many of the academics believe there is no reason to cut rates because the stock market is at highs. However, I argue it is because participants are expecting rate cuts and are pricing them in.

The German Dax has not hit all time new highs, but did break out on the daily chart. Same sort of set up with prices perhaps about to top to make a head and shoulders pattern here.

US Oil here now retesting support-turned-resistance. We had a nice uptrend with multiple swings, and reached a flip/resistance zone and from there broke below previous higher low swings. According to market theory, we should expect to see multiple swings to the downside. I am watching to see if we reject this resistance zone and confirm a lower high with the break below lows at the 56.20 zone.

Silver showing nice swings during the uptrend. We reached a resistance zone and confirmed a lower high. With the break of the 15.10 zone, I would like to see a retest with a confirmed lower high with a break below the lows for a continuation.

USDJPY here on the daily chart has reached a flip zone and found support there. Nice wick and a large engulfing candle provides some context. We seem to be creating a head and shoulders pattern here. We are seeing the transition from lower highs to higher lows if we break the neckline.

USDCAD showing perhaps a bottoming pattern leading to an eventual reversal. We are at an important flip/support zone. You can see that I have drawn what I ideally would like to see. Perhaps the Bank of Canada being more dovish this week will aid in providing a stronger break above the resistance one.

I like what I see here on AUDJPY. A very simple potential head and shoulders pattern here. Not the textbook head and shoulders, but nothing is ever perfect. Remember, the head and shoulders just shows us a transition from one trend to the other.

I like what I see here on EURNZD. A nice move lower, and the downtrend now beginning to show signs of a reversal and exhaustion. Ideally would like to see a higher low here which would confirm a head and shoulders.

Like what I see here on AUDCAD. We are at a very important support zone. If this breaks can we play the continuation lower? Yes, however I prefer to wait for a reversal, especially when I see multiple waves to the downside already. After multiple waves, the risk for a reversal is high, and being a business of probabilities, I would rather await for a reversal or an early trend trade (after one swing has already been made).

I like the fact that we are ranging at this zone here, already displaying 2/3 market movements. I am watching for a break above the 0.92 zone which also is a close above a flip zone. Again, perhaps the dovish Bank of Canada will aid in providing a nice catalyst.

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