The United States appears headed for a momentous day as the Non-Farm Payrolls report is due out tomorrow. This key, widely followed economic indicator is expected to weigh heavily on market conditions. Equities have been on an agonizingly slow march upwards. This is probably because of the scheduled release of the July payroll weights and for the 4th July holiday that notoriously thins out market liquidity.
Today’s trading environment is a testament to the risk-off position of most investors today. The 4th of July holiday usually brings us a market with less active traders and an overall slower market pace. Traders counterweights ahead of the all–important employment report. Some are continuing to sit on the sidelines, which is contributing to the very real feeling of uncertainty in the markets.
Further compounding this uncertainty are worries over international trade. Countries that cannot negotiate acceptable terms with the United States will soon be subject to much higher tariffs. This would dramatically change their economic calculus. Newly raised tariffs shake trader confidence further. They’re already tasked with trying to figure out a rapidly changing landscape fraught with new indexes and measures, paralleled up by economic and geopolitical concern.
Looking at the currency markets, Dollar Index recently finished up a five-wave drop down into subwave “c” of three. Analyst opinion is mixed, but some believe that this downtrend will be followed by a period of consolidation marked with a three-wave recovery. If this kind of recovery happens, it will likely take the form of a fourth wave rally off the red diagonal trendline support. This technical analysis points to a possible stabilization for the dollar, but that depends on what happens in the coming days and months.
On the July 9th deadline, former President Donald Trump announced that he would not be extending this deadline for tariffs. This statement indicates that important trade negotiations could happen well ahead of this deadline. Progress on these conversations would put the US in a stronger negotiating position for trade negotiations, which stocks would likely take higher on the news.
Given the historically inverse correlation that market observers have observed between the US dollar and stock performance, we shouldn’t be surprised. Should the dollar stabilize or appreciate on positive trade dialogue or strong employment numbers, equities will likely gain upward momentum. Private investors stand to benefit from these attractive market conditions. On the other hand, any negative tariff news or letdown in payroll counts would send the market downward.