Jobs CRUSHED expectations last week
The NFP report came in with a surprise to the upside: 517K (actual) v 187K (expected)
As mentioned in the previous newsletter, last week was a busy one for the markets. As expected, the Fed raised interest rates by only 25 bps. The real interest, however, was in Powell’s speech where he mentoined the word “disinflation” 15 different times. So, what does this mean?
While most people generally talk about inflation and deflation, disinflation is simply a decrease in inflation (i.e. it is the cooling off, or deceleration, of inflation). But use of that word by Powell is significant, especially after such a run up in inflation and the corresponding large rate hikes. Overall, his tone was dovish and suggests that the central bank is likely nearing a point at which they will run flat.
However, that was before Friday’s Non-Farm Payrolls report which came in scathing hot with a huge upside surprise of 517K jobs added to the economy when expectations were only for 187K jobs. But, as always, that’s not the whole story.
Average hourly earnings (YoY) surprised to the downside, coming in at 4.4% v. an expected 4.9%. It was 4.9% the previous month as well. So, it looks like new job offerings are likely scaling back on what they’re offering in terms of pay and bonuses. This is one of the important measures that the Fed is looking for when deciding on interest rate hikes. The lower your income, the less you can spend in an already-inflated environment, thereby taking some pressure off price and allowing it to fall lower.
But we can’t ignore the jobs number. We want to see the upcoming inflation data showing continued cooling to cushion how much that jobs number plays into the Fed’s next move.
The US Dollar (DXY)
The dollar ran up a bit at the end of last week. It is finding resistance at the daily pivot. If it can breakout higher, then the weekly pivot remains the target. But breaking down below 101.546 will signal that the bounce is complete and it is headed lower once more. Ultimately, I’m still looking at an initial longer-term target of the weekly S1 pivot around ~93.834.
Bitcoin (BLX)
Returning to the weekly BLX chart, we can note a striking similarity between the structure outlined in the 2018 and 2022 bear markets. Additionally, the inside pitchfork drawn on the chart shows the 2022 low catching a big just prior to the pitchfork support.
As such, a rally into the weekly pivot, to complete five waves up off the 2022 swing low, continues to appear to be the most likely path. And that will just set up a pullback before an impulsive rally and breakout above the weekly pivot that will likely carry price just beyond the weekly R1 pivot and into the mid-40Ks.
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Russell 2000 E-Mini Futures (RTY1!)
The Russell 2000 E-Minis look like they will likely top out soon (around the range resistance). The range appears to be accumulation. Note the volume decreasing throughout the range with the lows printing the significant volume, not the tops. But each attempt to push down was also weaker than the previous attempt. So, rallying up to the range resistance should result in a pullback to the daily pivot where they’re expected to catch a bid and rally toward the ~2476.80 level. Reaching that level will open up higher targets as well. So, as long as the daily pivot holds, my expectation is to see a run toward a new ATH.
Chart of the Week (FVRR)
Price has rallied impulsively through the daily R1 and R2 pivots, while breaking out above the descending channel resistance. I believe we will see price targeting the weekly pivot at ~57.33. Breaking out above the swing high will signal that is in progress and I am, then, expecting a rejection at that area to send price back down to the descending channel resistance where it should catch a bid and rally once again, breaking out higher. The 50 MA (blue) is nearing a bullish cross above the 200 MA (red). My invalidation for this rally higher is a breakdown below the daily pivot.
Final Thoughts
The Fed did as expected and only raised interest rates 25 bps. Furthermore, Powell has a much more dovish tone than we’ve heard in a while, mentioning the word “disinflation” numerous times. While the big surprise to the upside for jobs on Friday does add a bit of caution, continued cooling off of inflation will take out some of that sting. It’s also likely that we could see a large adjustment lower to this month’s jobs numbers when the next one comes out. And, if so, that will nullify a lot of concern about the Fed resuming its harsh rate hikes. For it’s part, the CME FedWatch Tool currently still shows a 97.4% probability of a 25 bps rate hike in March (and 2.6% chance of no hike). This is expected to fluctuate a bit this week as market participants take time to think through what the jobs number might mean for the next Fed meeting. Ultimately, I think we just keep watching the weekly pivot on the various charts. If below it right now, then expect a rally into it, followed by a pullback before price rallies once more and breaks out impulsively through it. If above it right now, then you may see a bounce at that weekly pivot area before price resumes its decline impulsively through it. Everything else is just noise.
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