Thu, Mar 23, 2023 @ 01:52 GMT
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Safe Havens Rally after the US Fires Missiles into Syria

Today, the US employment report for March will take center stage. The forecast is for nonfarm payrolls to have risen by 180k, less than the robust 235k in February, but still a solid number consistent with further tightening in the jobs market. The unemployment rate is forecast to have held steady at 4.7%, while average hourly earnings are expected to have risen at the same pace as previously in monthly terms.

We see the risks surrounding the NFP forecast as skewed to the upside, considering that the ADP jobs report for March showed that the private sector added 263k jobs, far more than the anticipated 187k. This would likely be one more set of data entering the basket of those supporting another near-term Fed rate hike.

According to the Fed funds futures, the next hike is fully priced in to come in September. So, a solid jobs report could bring those expectations forward, perhaps to anticipate that action in summer months. Such a shift in expectations could bring the dollar under renewed buying interest.

USD/JPY slid overnight after the US strike into Syria (see below), but the slide was stopped slightly above the psychological zone of 110.00 (S2). Then the rate rebounded somewhat. The pair is still trading below the downtrend line taken from the peak of the 14th of March, but given the inability of the bears to drive the battle below 110.00 (S2) and that we get the US jobs data later in the day, we prefer to stand pat for now. If the NFP number surprises to the upside, then we may see a test near the 111.00 resistance, where a clear break could open the way for another test near the key hurdle of 111.60 (R2). On the other hand, a disappointing report could prove the catalyst for a decisive dip below 110.00 (S2).

Safe havens rally after the US fires missiles into Syria

During the Asian trading session, safe haven assets such as JPY and gold came under renewed buying interest following reports that the US launched missiles against an air base in Syria. The US said that this was a response to a chemical attack the Syrian regime carried out against its own people. The US Pentagon said that the strike was intended "to deter the regime from using chemical weapons again".

Now, the questions in our minds are: What impact does this have on US-Russian relationships, considering that Russia is Syria’s biggest ally, and what might Russia’s reaction be? Also, was this a one-off strike, or the first of many to be carried out by the US?

If this uncertainty escalates further in the days to come, it could keep the market in a risk-off mood in our view. Safe haven assets could stay supported, while equities may underperform. For now, we expect US equity markets to take their cue from their European counterparts and open with negative gaps.

Gold surged on the event, breaking above the resistance (now turned into support) zone of 1260 (S1). The price structure on the 4-hour chart suggests a short-term uptrend, but given our proximity to the crossroad of the 1270 (R1) obstacle and the downside resistance line taken from the 11th of July, we prefer to stay neutral here as well. We would like to see a clear close above that crossroad before we trust the continuation of the short-term uptrend. Something like that could open the way for our next resistance of 1290 (R2). However, as we outlined above, there may be a positive surprise in the NFP number today, which could encourage gold-bears to push the price below 1260 (S1) and perhaps aim for the 1250 (S2) zone.

As for the rest of today’s highlights:

During the European day, we get industrial production and trade balance data from both Germany and the UK, all for February.

We also get Canada’s employment data for March. The forecast is for the unemployment rate to have ticked up. However, we view the risks surrounding that forecast as skewed to the downside, perhaps for an unchanged rate. We base our view on the nation’s Markit manufacturing PMI for March, which showed the strongest rate of employment growth for almost five years in the sector. A positive surprise in the jobs data could reverse some of CAD’s recent losses. We also get the nation’s Ivey PMI for March.

We have only one speaker on the agenda: BoE Governor Mark Carney.


Support: 110.35 (S1), 110.00 (S2), 108.80 (S3)
Resistance: 111.00 (R1), 111.60 (R2), 112.20 (R3)


Support: 1260 (S1), 1250 (S2), 1244 (S3)
Resistance: 1270 (R1), 1290 (R2), 1300 (R3)

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