The UK Employment Data: Market Caution and Analysis
In the world of forex trading, the markets have been experiencing a sense of caution and analysis in today’s Asian session. Most major currency pairs have been trading within a narrow range from yesterday, reflecting a subdued atmosphere. Investor sentiment has stabilized overnight, with major US stock indexes closing higher. However, this sense of caution still prevails as traders eagerly await tomorrow’s US CPI data, which will play a crucial role in shaping the Federal Reserve’s next move. The inflation data will be a key determinant in whether the Fed decides on a modest 25bps rate cut or a more aggressive 50bps cut at its upcoming meeting.
Earlier today, Australian data had minimal impact on market sentiment. Consumer confidence in Australia continues to remain at low levels, a trend that has persisted for over two years. On the other hand, business confidence has turned negative, indicating rising concerns about the economic outlook. These concerns suggest that the Reserve Bank of Australia’s (RBA) restrictive policies are effectively cooling the economy as intended. However, there is little indication that the central bank will accelerate its policy easing cycle, which is set to begin next year.
Looking ahead, all eyes are on the UK, where employment data is scheduled for release. The Bank of England (BoE) is expected to take a measured approach to rate cuts, with many analysts believing that another rate reduction at next week’s BoE meeting may be premature. However, this cautious stance is contingent on no major negative surprises in today’s job data, tomorrow’s GDP figures, and next week’s CPI report.
For the week so far, the Canadian Dollar (Loonie) is leading the pack as the strongest performer, followed by the Australian Dollar (Aussie) and then the US Dollar. On the other end of the spectrum, the Swiss Franc is the weakest, with the Japanese Yen and the New Zealand Dollar (Kiwi) also under pressure. The Euro and the British Pound are positioned in the middle of the pack.
Technically speaking, the GBP/AUD pair’s pullback from 2.0034 may have already completed at 1.9276. Multiple support from the 55-day Exponential Moving Average (EMA) is a near-term bullish sign. Further rise is now expected to retest 2.0034 first. A firm break above that level will likely resume a larger rally. However, a break of 1.9536 would suggest that the correction from 2.0034 is possibly extending with another downward leg through 1.9276.
In the Asian markets at the time of writing, the Nikkei is up 0.08%, the Hong Kong Hang Seng Index is up 0.28%, the China Shanghai Stock Exchange Composite Index is up 0.28%, and the Singapore Strait Times Index is up 0.38%. The Japan 10-year Japanese Government Bond (JGB) yield is down -0.0001 at 0.895%. Overnight, the Dow Jones Industrial Average rose by 1.20%, the S&P 500 rose by 1.16%, and the NASDAQ Composite rose by 1.16%. The 10-year yield fell by -0.013 to 3.697%.
Australian Economic Indicators
In Australia, the Westpac Consumer Sentiment Index saw a slight decline of -0.5% month-on-month in September, dropping from 85.0 to 84.6. This reflects the ongoing pessimism that has gripped Australian consumers for more than two years. According to Westpac, this persistent negativity shows “no real signs of lifting,” with key indicators pointing to growing anxiety about the country’s economic outlook.
Sentiment around economic conditions for the next 12 months dropped from 83.3 to 81.2, while unemployment expectations rose sharply from 133.5 to 138.4, signaling growing concerns about job security. However, the interest rate expectations index saw some relief, falling from 135.5 to 123.8, as consumers became less worried about further rate hikes.
Westpac noted that the focus among consumers appears to be shifting. “While cost-of-living pressures are becoming a little less intense and fears of further interest rate rises have eased, consumers are becoming more concerned about where the economy may be headed and what this could mean for jobs,” the report highlighted.
Australia’s National Australia Bank (NAB) Business Confidence fell from 1 to -4 in August. Business Conditions also declined, dropping from 6 to 3. Trading conditions dipped by 2 points, while profitability slid by 1 point. Forward orders remained unchanged at -4.
NAB Chief Economist Alan Oster commented on the data, noting that “conditions are now fairly clearly below average compared to the history of the survey,” underscoring the broader weakness in the private sector as the economy slows.
The decline in the employment gauge is particularly notable, as it “suggests the period of very strong private sector labor demand seen throughout the post-Covid period may be coming to an end,” Oster added.
China’s Economic Indicators
China’s exports grew by a robust 8.7% year-on-year to USD 308.7 billion in August, surpassing market expectations of 6.5% year-on-year growth. However, this impressive figure is largely attributed to base effect, as exports contracted by -8.8% year-on-year during the same period last year.
Exports to key regions such as the US, the EU, and the Association of Southeast Asian Nations (ASEAN) all posted solid gains. Notably, exports to the EU saw the largest increase, growing by 13% year-on-year.
In terms of imports, China’s intake from the US rose by 12% year-on-year, while imports from the EU showed a decline. Imports from ASEAN grew by 5% year-on-year. Overall import growth remained weak, increasing by just 0.5% year-on-year compared to the expected 2.0% year-on-year.
China’s trade surplus widened significantly, rising from USD 84.65 billion in July to USD 91.02 billion, exceeding expectations of USD 83.9 billion.
Looking Ahead in the Markets
The UK employment data is the key focus in the European session today, while the US calendar remains empty. In the daily outlook for GBP/USD, the intraday bias remains neutral, with further rise expected as long as the 1.3043 resistance turned support remains intact. On the upside, a firm break of 1.3265 will resume the larger uptrend towards the 100% projection of 1.2298 to 1.3043 from 1.2664 at 1.3409. However, a firm break of 1.3043 will turn the bias back to the downside for a deeper pullback.
In the bigger picture, the uptrend from 1.0351 (2022 low) is in progress, with the next target set at the 38.2% projection of 1.0351 to 1.3141 from 1.2298 at 1.3364. For now, the outlook will remain bullish as long as the 1.2664 support holds, even in the case of a deep pullback.
Overall, the global markets continue to navigate through cautious waters as key economic data releases and central bank decisions shape the future direction of currencies and equities around the world. Investors and traders alike are closely monitoring developments to make informed decisions in an ever-changing financial landscape.
