Strong Jobs Lift Dollar; Oil Up on Iran Risks, Stocks Steady, Gold Softens

- Vijay Valecha, Chief Investment Officer, Century Financial

The S&P 500 ended the session little changed, with a slight decline of 0.05%. Worries around the impact of artificial intelligence on several industries curtailed a rally fuelled by strong employment data.

Stocks had initially received a boost from stronger-than-expected employment data. Payrolls rose in January by the most in more than a year, while the unemployment rate unexpectedly fell, according to data from the Bureau of Labour Statistics. Employers added 130,000 jobs last month vs an expectation of 66,000, and the unemployment rate declined to 4.3% vs 4.4%.

Growth and momentum stocks are suffering the most due to the prospect of interest rates staying higher for longer. This is a classic case where good news, a stronger job market, becomes bad news by holding yields higher.

Following the jobs data, traders are now leaning toward the year’s first rate cut happening in July. Traders had seen June as a possibility, and ramped up bets for April after retail sales disappointed.

The market’s attention now turns to the consumer price index.

From a technical perspective, the index is trading above the 9 and 21 SMA on the daily chart. The RSI is around 58, indicating that bullish momentum is slowly building back up. On the 4-hour chart, immediate support is at $6,920 (100 SMA), followed by $6,904 (200 SMA). Immediate resistance is at the all-time high level of $7,002. A break above this level could send the index to $7,124, which is the 1.618 level on the Fibonacci extension connecting the low of 20 Jan, the high of 28 Jan, and the low of 5 Feb.

The U.S. Dollar Index (DXY) closed flat on Wednesday after a volatile session in which prices moved about 0.80%, only to end 0.02% higher. The index is trading slightly higher during the Asian session on Thursday, up 0.07%. The EUR/USD pair fell by 0.20% yesterday, with continued pressure today seeing it trade with another 0.07% decline.

The main catalyst for the dollar’s much-needed support yesterday came in with a much stronger than expected labour market data in the US. Nonfarm Payrolls for January rose by 130,000 compared to the expected 66,000, while the unemployment rate fell to 4.3% compared to the expected 4.4%, and Average Hourly Earnings rose to 0.4% compared to the 0.3% expected. All this data led to a strong shift in sentiment towards a pause in further rate-cut easing by the Fed. This was evident in the sharp decline in the odds of a rate cut at the next FOMC meeting, which had been rising recently. According to the CME FedWatch Tool, the odds of a 25-bps rate cut for the March FOMC meeting now stand at 7.5%, down from 20.1% just a day ago. These shifts are providing some relief to the recent weakness that the US dollar is facing. The markets are now shifting their focus to Friday’s crucial inflation print, which will guide investors on the policy path moving forward.

From a technical standpoint, the dollar index has printed a doji on the daily chart for Wednesday, suggesting uncertainty. Yesterday's high coincided with the 9-day SMA around 97.2, suggesting that the moving average, now near 97.15, remains a potential resistance level to clear before short-term trend changes. Even the RSI hovering flat around the 40-level is suggesting bearish but slowed momentum. The EUR/USD pair fell yesterday but bounced back from the 9-SMA level on the daily chart, suggesting potential support around 1.1839 and a strong market structure at the moment.

Oil gained nearly 1% on Wednesday as market participants continued to monitor the simmering tensions between the U.S. and Iran. Although talks are underway concerning Iran’s nuclear program, the U.S. has ramped up military presence in the Middle East in preparation for action if talks don’t go well. In the near-term, geopolitics is playing a more dominant role in influencing prices, offsetting the impact of the API's 8.5-million-barrel increase in stockpiles reported last week, which marked the highest level since June. If the U.S. initiates a military strike, it could disrupt Iranian oil flows and supply.

Crude oil has gained in five of the past six weeks owing to geopolitical risks. However, long-term fundamentals still indicate excess supply relative to demand. But in the meantime, oil is likely to stay range-bound, especially given the political difficulties in reaching a nuclear deal. Brent is holding steady at $69.66 in today’s session, with immediate support around $68.95. Sustained moves above $69.50, marked by the early Feb highs, could push Brent to $72.52. A Fibonacci extension connecting the mid-December low to the late-January high shows the 38.2% retracement support at around $65.93. WTI is holding steady at around $64.88, with immediate support around $64 and resistance at around $65.67.

Precious metals are trading on a softer note today after yesterday's positive jobs report pushed back expectations for the Fed's rate cuts. Gold is trading around $5,060, near a 2-week high. Silver is hovering around $84. Both metals closed higher yesterday.

The NFP report yesterday, a positive surprise for markets, showed 130,000 additions in January (vs. a forecast of 70,000). This news might lead to minor pullbacks for both gold and silver from key resistance levels. The data reinforced the Fed’s cautious stance, with traders pushing back expectations for the next rate cut to July from June. However, for the full year 2025, total job growth was revised from 584,000 to 181,000 (an average of only 15,000 jobs per month). This will provide a floor for both metals. Along with this, a dollar under pressure and geopolitical tensions surrounding the U.S.-Iran provide a firm footing. Investors are awaiting today's weekly jobless claims data for more clarity. For silver, the market would be in deficit for a sixth consecutive year (Silver Institute report) due to surging investment demand.

On a 4-hour timeframe, gold is holding above the 21-period SMA at $5,050. The next support is likely around the $5,000-$5,020 zone. The RSI at 58 suggests a constructive scenario with positive momentum. Resistance could appear in the previously tested $5,100-$5,200 zone, which includes the 61.8% retracement (measured from the $5,597.89 high to the $4,401.99 low) at $5,141.05.

Silver’s immediate support is likely at the 9-day SMA at $81.55. However, a resistance test could be around the 38.2% retracement (measured from the $121.64 high to the $64.10 low) at $86, with the next test at the 21-day SMA at $92.