Fed Independence Under Fire: Trump vs. Cook Legal Battle Rocks Markets

Market Sentiment Overview

Trump’s attempt to fire Fed Governor Lisa Cook on “mortgage fraud” allegations triggered constitutional crisis concerns, with Cook filing a lawsuit to defend her position. Markets showed muted reaction as investors expect Cook to prevail legally, but the attack on Fed independence adds uncertainty ahead of the critical September 17 FOMC meeting. PCE inflation data met expectations at 2.6% headline and 2.9% core, keeping September rate cut bets intact at 85%. All eyes now turn to Friday’s NFP report, following July’s shocking 73k miss and questions about data reliability.

Currencies

USD Index: Modest Recovery Amid Political Turmoil (97.38)

Current Trend: Mixed/Consolidative Market Sentiment: Uncertain

The Dollar Index shows signs of stabilization at 97.38 after three consecutive weekly losses, though it remains trapped near yearly lows. Trump’s firing of Fed Governor Lisa Cook created initial volatility, but markets expect her legal challenge to succeed given constitutional protections. The controversy highlights Trump’s broader strategy to install loyalists on the FOMC, with Christopher Waller emerging as his preferred replacement for Powell. Fed officials maintain their data-dependent stance, with 85% odds still priced for September cuts. Immediate resistance at 98.18 and 98.81, critical support at 96.42 and 95.89.

EUR/USD: Bulls Gain Confidence Near Key Resistance (1.1686)

Current Trend: Bullish Market Sentiment: Positive

EUR/USD trades at 1.1686, having recovered from weekly lows below 1.1600 to test key resistance levels. European political woes continue with French PM Bayrou facing a confidence vote on September 8 over austerity measures, while Russian attacks on EU delegation buildings in Kyiv escalated tensions. However, the EU proposal to remove tariffs on US industrial goods while providing preferential access for American seafood and agriculture supports the pair. Technical indicators show RSI around 63 with bullish momentum intact. Immediate resistance at 1.1803 and 1.1935, key support at 1.1596 and 1.1470.

GBP/USD: Range-Bound Ahead of US Jobs Data (1.3500)

Current Trend: Consolidative Market Sentiment: Cautious

Cable holds steady at 1.3500, trading within the August 22 range despite gradual recovery attempts above this key level. The pair faces another holiday-shortened week with UK markets closed Monday for the Summer Bank Holiday. UK inflation remained sticky at 3.8% with strong services PMI supporting BoE hawkishness, but focus remains on US employment data. The 21-day SMA crossed above the 100-day SMA, confirming a bull cross, though RSI near midline warrants caution. Key resistance at 1.3655 and 1.3788, critical support at 1.3389 and 1.3254.

Stocks

Broadcom (AVGO): AI Momentum Drives Target Upgrades (297.39)

Current Trend: Bullish Market Sentiment: Very Positive

Broadcom trades at 297.39 as multiple analysts raised price targets ahead of September 4 Q3 earnings. UBS lifted its target to $345 from $290, citing strong demand for Google’s TPUv6p AI chips and expecting 60% Y/Y AI revenue growth in 2025. Analysts anticipate upside to Q4 guidance driven by better unit trends for TPUv6p, with wafer requirements increasing 51% Y/Y. The company’s $60-90B custom chip addressable market and AI networking strength into FY26 support a bullish thesis. Immediate resistance at 308.78 and 316.70, support at 288.72 and 281.32.

S&P 500 ($$US500): Tests Record Territory Despite Caution (6,463.40)

Current Trend: Consolidative

Market Sentiment: Cautious

The S&P 500 trades at 6,463.40 after briefly breaking above 6,500 for the first time on Thursday before retreating. Wells Fargo advises trimming equity allocations given extreme valuations, with the S&P 500 to Commodity Index ratio hitting new all-time highs after tripling since 2022. The firm recommends reducing small-caps and communication services while maintaining a large-cap tech overweight. Technical resistance at 6,585.80 and 6,736.32, support at 6,403.01 and 6,288.33. Post-Jackson Hole interpretation will likely decide the direction.

Commodities

Gold: Approaches Four-Month Highs (3,448.64)

Current Trend: Strongly Bullish

Market Sentiment: Very Positive

Gold rallied to 3,448.64, approaching four-month peaks on dovish Fed expectations and escalating geopolitical tensions. Russia launched its second-largest aerial attack on Ukraine, killing 23 people and damaging EU offices, while Putin shows little interest in genuine peace talks. Trump’s threats against Fed independence and constitutional crisis concerns support safe-haven demand. RSI climbed above 60 with Gold pulling away from moving averages. Next resistance at 3,499.03 and 3,536.75, support at 3,397.74 and 3,363.26

WTI Crude ($$WTI): Geopolitical Support Meets Supply Concerns (64.59)

Current Trend: Mixed

Market Sentiment: Cautious

WTI crude trades at 64.59, gaining 0.55% for the week despite ongoing supply concerns. Ukrainian attacks on Russian energy infrastructure intensified, targeting the Druzhba pipeline and refineries, cutting 10% of Russian refining capacity. However, Goldman Sachs projects Brent crude falling to $50 by end-2026 due to the expected 1.8 million bpd surplus from OPEC+ production increases. The approaching end of the US summer driving season on Labor Day signals weaker seasonal demand ahead. Resistance at 66.13 and 68.30, support at 62.48 and 60.38.

Crypto

Bitcoin: Major Selloff Tests Critical Support (108,384.40)

Current Trend: Bearish

Market Sentiment: Very Negative

Bitcoin trades at 108,384.40, having crashed below the critical $110,000 level after a whale dumped 24,000 BTC (~$2.7 billion), triggering $1.8 billion in liquidations with 74% from long positions. Despite Fed dovishness typically supporting risk assets, BTC declined over 10% from its August 14 record high of $124,474. September token unlocks totaling $4.7 billion add supply pressure, with SUI leading at $153 million. On-chain data shows spot demand neutralized while futures sentiment turned bearish. Critical resistance at 112,286.19 and 116,982.22, next support at 103,666.11 and 99,123.10.

Key Events This Week (September 2-6, 2025)

Major Economic Releases

• Monday: Labor Day Holiday (US markets closed), UK Summer Bank Holiday
• Tuesday: US ISM Manufacturing PMI, Eurozone Flash CPI for August
• Wednesday: US JOLTs Job Openings, ADP Employment (delayed due to holiday), Fed Beige Book
• Thursday: US Initial Jobless Claims, ISM Services PMI, Broadcom Q3 Earnings
• Friday: US Nonfarm Payrolls (consensus: 78k vs 73k prior), Unemployment Rate (4.3% expected), UK Retail Sales

International Data

• Monday: China Official Manufacturing PMI
• Monday: China Caixin Manufacturing PMI, Japan Capital Expenditure
• Wednesday: Australia Q2 GDP
• Friday: Japan Household Spending, Tokyo CPI, Eurozone Q2 GDP revision

Week Ahead Outlook

Friday’s NFP report emerges as the week’s defining event, carrying extra significance following Trump’s dismissal of the Bureau of Labor Statistics commissioner and data reliability concerns. The consensus expects just 78k job additions with unemployment rising to 4.3%, which would reinforce Fed dovishness and weaken the Dollar further. However, given July’s massive miss (73k vs 110k expected) and subsequent controversy, market volatility could be extreme regardless of the outcome.

The key question is whether August data will confirm broader labor market deterioration, potentially justifying a third rate cut this year beyond September’s widely expected move. Powell’s Jackson Hole acknowledgment that “risks appear to be shifting toward the labor market” sets the stage for aggressive easing if employment continues weakening.

Meanwhile, Trump’s constitutional battle with the Fed adds a wild card element, though markets expect that Governor Cook will retain her position. The ISM PMIs (Tuesday and Thursday) will also be crucial for detecting tariff-driven price pressures that could complicate the Fed’s easing approach.

Technical levels to monitor: USD Index 96.42 critical support, EUR/USD 1.1883 resistance, Gold 3,499.03 breakout level, Bitcoin 106,611.16 make-or-break support.

Risk management remains essential given the confluence of employment data volatility, constitutional crises, and geopolitical tensions, creating an unusually complex trading environment.