Concerns about a recession have resurfaced

Concerns about a Recession Have Resurfaced – The ongoing US economic releases continue to fuel estimates of an imminent recession, putting pressure on equities while the likelihood of a 50-bp rate cut by the Federal Reserve in September is increasing.

The S&P 500 and Nasdaq 100 declined slightly yesterday after attempting to recover some of their weekly losses. They closed yesterday’s trading down by 0.2%. In contrast, the Dow Jones closed the day higher by 38 points, after opening the day higher by 100 points.

The number of job openings in the US, as per the JOLTS report, decreased significantly last month to 7.67 million from 7.91 million, which was below the expected increase to 8.09 million. This marks the lowest reading since January 2021, and the previous figure was also revised downward from 8.18 million.

DXY downside trend has resumed

The US Dollar Index decreased after the JOLTS jobs openings report. The decline continued to as low as 101.15 earlier this morning, confirming the resumption of the downward trend for now. Technical indicators remain bearish on most time frames ahead of today’s data. The outcomes of the data could be another catalyst for another drop, depending on the results.

Currently, the key support level for the Dollar Index is between 101.0 and 100.60. This support has been strong since February 2023. A breakdown below this support level, especially with a weekly close below this range, would strengthen the bearish outlook, impacting both the short-term and medium-term perspectives. This could potentially lead to another decline, possibly towards the 99.30 level.

Today’s data

The expectations for today’s economic releases are mixed, but it’s safe to say that the estimates are not extremely positive or negative. However, we believe that the main focus will be more towards the Services PMI, which is expected to remain at 51.4. Any negative surprise is likely to cause much higher volatility, as this will increase the likelihood of a rate cut of more than 25 basis points by the Federal Reserve in this month’s meeting.

Also, the focus will be on the Employment Component and the New Orders. In general, the estimates suggest a softer outcome compared to last month. Any data lower than expected would confirm the market’s fears of a larger policy shift by the Federal Reserve.

EURUSD near 1.11

The Euro has rebounded after testing the 1.1040 support area in the past few days. The pair surged following the release of US data yesterday and continued to rally earlier today, testing the 1.11 resistance area. This confirms the resumption of its upward rally. Technical indicators remain bullish on most timeframes, indicating a potential continuation in the coming days.

The release of US economic data may cause another increase in value, with a chance to surpass the previous peak around 1.12, especially if the data confirms concerns about a significant slowdown in the US labor market. This could lead to a major shift in policy by the Federal Reserve later this month. As a result, any decrease in the value of the Euro is likely to be limited to above 1.09 for now. If the peak of 1.12 is surpassed, it could open up the potential for further gains, possibly reaching 1.13 for now.

USDJPY below 143.0

USDJPY declined to its lowest level since August 5 after the release of the US data yesterday. This resulted in the lowest daily close since January 2024, deepening the bearish outlook, especially on the daily chart. This suggests a potential further decline, with a possibility of retesting the lows around 141.75 reached on August 5.

The technical indicators are still far from oversold territory, which suggests that USDJPY still has some room to move. Today’s US data could trigger a significant move where buyers might reappear near that support. However, if the price breaks below that level, it could lead to much steeper declines, potentially towards 140.0 for now.

Prepared by Nour Hammoury, Chief Market Analyst at SquaredFinancial
Nour is an investor, independent market strategist, and financial advisor. He holds a BA in Finance and Banking Science from Al-Ahliyya Amman University and a CFTe in Economics from the International Federation of Technical Analysts. He has more than 15 years of experience in forex, stocks, and global economic developments, as well as central bank policies and intermarket analysis. He appears regularly on major international TV networks, such as BBC, Al-Jazeera, Al Hurra, CNBC, and Bloomberg, holding open discussions and sharing insights and readings of the markets and trends.

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