US indices remained under pressure last week. Markets continue to react to developments in the Middle East. There are still no signs of easing tensions, which fuels fears of a prolonged conflict. Meanwhile, rising energy prices remain an additional negative factor for real-sector companies.
The dollar benefits from the current circumstances, strengthening against most currencies. A significant share of energy contracts remains denominated in US dollars, which supports demand for the American currency. In addition, at this stage European economies appear less resilient than the US, which is putting pressure on their national currencies. Brent Crude oil prices have shown high volatility. Early in the week, prices dropped to around $94.13 after reports that Donald Trump, amid productive negotiations, decided to postpone strikes on Iran’s infrastructure. However, by the end of the week oil prices resumed growth: shipping through the Strait of Hormuz remains virtually impossible (with rare exceptions), deepening the supply shortage on the global market.
Germany's Unemployment Dynamics
The situation in Germany’s labour market remains challenging. The renewed rise in energy prices amid the Middle East conflict has led some companies to cut production volumes. As a result, staff reductions have followed. World analysts expect the number of unemployed to continue increasing in the reporting period. This is a negative factor for the European economy and the euro, as economic weakness could prompt the ECB to move towards another phase of monetary easing. In this environment, EUR/USD could decline to 1.1400.
The US. Non-farm Payrolls
The US labour market is showing signs of cooling. A month earlier, data on new jobs were well below expectations, reflecting a drop in the indicator. Analysts expect that in the reporting period the US economy will return to job creation. At the same time, unemployment is projected to rise. The labour market’s health remains a key factor guiding the Federal Reserve’s monetary policy decisions. Deteriorating macroeconomic indicators increase the likelihood of a key rate cut, which weighs on the dollar. At the same time, a weaker dollar supports dollar-denominated assets, particularly gold. In this context, XAU/USD could return to around 4,512.60.
The US. Services PMI
The US services sector remains resilient, with the business activity index staying in the growth zone. This is a positive sign, as the sector contributes about 75% of GDP. While analysts expect the indicator to remain above 50 (growth zone), they also anticipate a decline compared to the previous period. This is unlikely to prompt the Federal Reserve to accelerate rate cuts given persistent inflation risks, although in the short term a weaker reading could put pressure on the dollar. In this scenario, USD/JPY could decline to 158.00.