Geopolitics join pre-NFP caution, doubts over China to roil the mood

Market sentiment remains sour, after a brief relief rally, as political fears surrounding Japan and the UK joined the anxiety ahead of the US employment data for June. Doubts over China’s ability to renew economic optimism and recession fears add strength to the risk-off mood.

With this, the USD Index refreshed a 20-year high and drown the EURUSD the most among the G10 currency pairs.

Gold prices remain directionless while oil prices struggle to extend the previous day’s rebound from the lowest levels since late April.

Cryptocurrencies brace for the strongest week since late March on widely chatters short-covering moves ahead of the US NFP.

Following are the latest moves of the key assets:

• Brent oil retreats towards 11-week low, down 0.10% intraday near $106.40.
• Gold sellers attack yearly low near $1,730 while reversing the previous day’s rebound.
• USD Index takes the bids to refresh 20-year high at 107.80.
• FTSE 100 and STOXX50 both drop 0.30% intraday but DAX remains directionless.
• Wall Street benchmarks closed with notable gains led by Nasdaq.
• BTCUSD stays firmer around $21,800 while the ETHUSD gains near 0.80% intraday to $1,240 at the latest.

Japan, UK and China offered a trifecta attack on sentiment

Be it shooting on Japan’s ex-PM Shinzo Abe or uncertainty over British politics due to Boris Johnson’s resignation, not to forget doubts over China’s heavy stimulus, everything contributed to Friday’s risk-aversion. Also, the inversion between the two-year and ten-year US Treasury yields exerted additional downside pressure on the riskier assets.

The risk-aversion propelled the US dollar towards refreshing the 20-year high, after retreating the previous day, which in turn joined the market’s fears of downbeat US jobs report to challenge optimists.

EURUSD is the biggest loser among the G10 currency pairs, followed by GBPUSD and NZDUSD. Gold remains pressured after a failed attempt to recover from the yearly low while oil prices also portray energy traders’ indecision after bouncing off the 11-week low the previous day.

BTCUSD and ETHUSD hold onto the earlier recoveries from the yearly low as they track equity gains ahead of the Q2 2022 earnings season.

⏫ 🟢 Strong buy: USDCAD

⏬ 🔴 Strong sell: Nasdaq, silver, ETHUSD

⬆️ 🟢 Buy: USD Index, USDJPY

⬇️ 🔴 Sell: DAX, FTSE 100, gold, BTCUSD

US NFP is the key

Given the likely easing in the US Nonfarm Payrolls, coupled with expectations of no change in the Unemployment Rate, today’s data gains more importance as policymakers have tried to defend the hawkish moves of late. Should the job numbers surprise markets with upbeat outcomes, the US dollar strength and fears of more/heavier rate hikes could force equities to reverse the latest gains.

Elsewhere, political headlines from the UK and Japan, as well as China’s attempts to please markets via trade and stimulus news, could also entertain traders.

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