Market news – Week 2, August 2022

The US non-farm payrolls report released last week was far better than predicted, driving the US dollar higher and relieving worries of a recession hitting the world’s largest economy.

Forex

Last week, EUR/USD was down, trading at around the $1.018 mark. This was because of a positive US employment report released on Friday, August 5 2022, that temporarily spooked the recession's ghost and boosted the US dollar. The data exceeded forecasts by showing that 528,000 new jobs were added in July and that the unemployment rate fell to 3.5%.

Meanwhile, the GBP/USD ended its week in the red after 2 weeks of consecutive gains. The pair struggled to build momentum after the Bank of England's (BoE) comments on the economy. 

The BoE raised its policy rate by 50 basis points to 1.75% at its August meeting. However, even after this rate increase, the BoE governor commented that there was no predetermined path for raising rates by 50 basis points in every meeting and that all options would be considered at all future meetings. A combination of heavy pound selling during this BoE event and strong US jobs data led to the GBP/USD falling dramatically. 

This week's focus would be the release of US inflation figures and the UK's Gross Domestic Product (GDP) data.

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Commodities

August began with gold climbing to reach near $1,800 before it reversed some of its weekly gains on Friday, 5 August 2022. Since the beginning of the week, XAU/USD gained more than 1%, thanks to the drop in US Treasury bond rates and the US dollar's lacklustre performance. However, following the US's positive July jobs data, gold reversed its course.

The US July inflation report is due this week and will be the next major driver for gold.

Meanwhile, oil fell for the first time in a week since early April. Although oil recovered some of its weekly losses as a result of solid US job growth figures, it ended the week at its lowest level since February, roiled by lingering fears that a recession would reduce fuel consumption.

Oil dealers have been concerned about inflation, economic growth, and demand, but indicators of constrained supply have kept prices stable.

Cryptocurrencies

Last week, apart from minor fluctuations, major cryptocurrencies mostly traded sideways. Even though the coins saw a slight decline mid-week, they recovered towards the end of the week without sharp movements. 

Bitcoin started the week above the $23,000 level. However, pressure mounted on the most popular cryptocurrency due to US central banks announcing their latest interest rate hike and increasing tension between China and Taiwan. As a result, Bitcoin fell to the mid-$22,000 level. Nevertheless, bulls returned to help Bitcoin climb and go above the $23,000 level. 

Bitcoin prices were down by 2.27% at Sunday's close, and the cryptocurrency was trading at $23,266.55. As seen in the chart above, Bitcoin's SMA 5 at $23,198.37 was leading its SMA 10 at $23,146.75. 

Ethereum, the second largest cryptocurrency in the world by market capitalisation, followed Bitcoin's footsteps and fell below the $1,500 level mid-week. However, the cryptocurrency recovered and regained the $1,700 threshold by the end of the week.

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US stock markets

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The US stock market ended the week flat, with the Nasdaq gaining 2.01%, the S&P 500 increasing by 0.36%, and the Dow declining by 0.13%. This was due to impacts of the earnings report and the July non-farm payroll report.

According to non-farm payrolls, the unemployment rate is back to its pre-pandemic level and at its lowest level in 53 years. Despite what might seem like fantastic news, the Federal Reserve believes that job growth is a sign that inflation isn't under control. This has raised the prospect of more aggressive tightening by the Fed, and striking the right balance seems to be quite a challenge for them.

Since a majority of S&P 500 companies have already reported earnings over the last couple of weeks, we can expect a more passive week. An essential update on consumer inflation will be available on Wednesday, 10 August 2022, with the latest Consumer Price Index (CPI).

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