NFP Shock Triggers Fed Rate Cut Speculations: Dollar Plunges as Trade Wars Intensify

Market Sentiment Overview

Markets experienced dramatic reversals as dismal US employment data triggered a complete reassessment of Fed policy, with September rate cut odds surging to 70% from 30%. The Dollar Index crashed from three-month highs above 100.50 to mid-99s following NFP’s shocking 73,000 addition versus 110,000 expected. Trade war tensions escalated with Trump imposing fresh tariffs on Canada (35%) and Switzerland (39%), while EU-US trade deal criticism from France and Germany weighs on Euro sentiment. August historically bearish trends for crypto markets add pressure across risk assets.

Currencies

USD Index: Fourth Month Decline Despite Fed Hawkishness (98.26)

Current Trend: Bearish Market Sentiment: Negative

The US Dollar Index continues its fourth consecutive monthly decline, trading at 98.26 after crashing from three-month highs above 100.50 following the NFP shock. Despite the Fed’s 9-2 hawkish hold with only Waller and Bowman dissenting for cuts, Friday’s employment catastrophe (73,000 vs 110,000 expected) completely undermined Dollar strength. The DXY now faces immediate resistance at 98.99 and stronger resistance at 100.62, while key support lies at 97.50 and the critical 95.89 level. September rate cut odds have surged to 70% from 30% pre-NFP, with markets pricing a complete Fed policy reversal despite Powell’s earlier caution.

EUR/USD: Recovers Despite Trade Deal Backlash (1.1584)

Current Trend: Recovering Market Sentiment: Mixed

EUR/USD has bounced to 1.1584 from two-month lows near 1.1390, benefiting from broad Dollar weakness despite the controversial EU-US trade deal. French PM François Bayrou’s “dark day” comments and German Chancellor Friedrich’s “considerable damage” warnings highlight European discontent with the lopsided agreement requiring €600 billion in US investments and €250 billion annual energy purchases. Technical analysis shows the pair testing resistance at 1.1691, with stronger resistance at 1.1804. Support holds at 1.1472 and 1.1369. The recent recovery above the 20-day moving average suggests potential for further gains if Dollar weakness persists.

GBP/USD: Technical Breakdown Below Key Moving Averages (1.3274)

Current Trend: Bearish (Recovering)Market Sentiment Cautious

GBP/USD trades at 1.3274 after recovering from two-month lows below 1.3200, but remains trapped below the declining 20-day moving average. The pair faces immediate resistance at 1.3382 and stronger resistance at 1.3507, while support lies at 1.3138 and 1.3007. Thursday’s BoE decision looms large with 82% probability of a 25bps cut to 4.0%, creating a policy dilemma between controlling 3.6% inflation and supporting slowing growth. The bear cross formation (21-day SMA below 50-day SMA) remains intact, suggesting underlying bearish momentum despite Friday’s NFP-driven recovery.

Stocks

McDonald’s (MCD): Consolidating Ahead of Earnings (302.79)

Current Trend: Neutral/Consolidating Market Sentiment: Cautiously Positive

McDonald’s trades at 302.79, consolidating within a tight range ahead of Wednesday’s earnings report. The stock faces immediate resistance at 305.05 and stronger resistance at 308.89, while support lies at 298.37 and 294.84. UBS maintains a Buy rating with $350 target, citing successful value promotions and defensive characteristics. The Earnings ESP of +0.43% suggests analyst optimism, with expectations for $3.15 EPS (+6.1% YoY) and $6.71 billion revenue (+3.5% YoY). Technical indicators show neutral momentum, with the stock trading near the 20-day moving average, positioning for a potential breakout post-earnings.

S&P 500: Tests Key Support After Tariff-Driven Selloff (6,236.60)

Current Trend: Bearish Market Sentiment: Risk-Off

The S&P 500 has declined to 6,236.60, testing critical support levels after tariff-related concerns triggered risk-off sentiment. The index faces strong resistance at 6,414.02 and 6,546.75, while key support levels are established at 6,072.12 and the more critical 5,925.10. Despite the NFP-driven Dollar weakness potentially supporting foreign earnings, trade war uncertainties and 20-25% average tariff expectations continue weighing on corporate margins. The recent breakdown below the 20-day moving average signals weakening momentum, though oversold conditions may provide near-term bounce opportunities.

Commodities

Gold: Breaks Above Key Resistance on Fed Pivot Hopes (3,362.57)

Current Trend: Bullish Market Sentiment: Positive

Gold has surged to 3,362.57, breaking above the key 3,340 resistance level (20-day and 50-day SMAs confluence) following the NFP shock and renewed Fed easing expectations. The precious metal now targets resistance at 3,430.60 and the stronger 3,499.96 level, while support is established at 3,273.62 and 3,199.70. The 3% plunge in 10-year Treasury yields and 70% September rate cut probability provide strong fundamental support. Technical indicators show bullish momentum with RSI above 50, suggesting the recent consolidation phase has ended and a new upleg is underway.

WTI Crude Oil: Breaks Higher Despite Supply Concerns (67.97)

Current Trend: Bullish Recovery Market Sentiment: Cautiously Positive

WTI Crude has rallied to 67.97, breaking above the recent $64.00 resistance and testing higher levels. The commodity faces resistance at 71.09 and stronger resistance at 73.57, while support lies at 65.82 and 63.34. The recovery comes despite ongoing supply concerns from Trump’s pro-energy policies and abundant domestic production capacity. Geopolitical tensions and potential demand impacts from trade wars create a complex fundamental backdrop, with technical momentum currently favoring the upside after breaking the recent consolidation range.

Central Bank Calendar & Key Events (August 5-9, 2025)

Major Central Bank Meetings

• Wednesday: Reserve Bank of India (5.50% expected hold)
• Thursday: Bank of England (25bps cut to 4.0% expected), Bank of Mexico (25bps cut to 7.75% expected)

Key Economic Releases

• Monday: US Factory Orders (June), Eurozone Sentix Index
• Tuesday: US ISM Services PMI (July), China Services PMI, Canada Trade Balance
• Wednesday: New Zealand Employment Data (Q2), Germany Industrial Orders
• Thursday: China Trade Data, Australia Trade Balance, UK Halifax House Prices
• Friday: Japan Household Spending, Canada Employment Data, BoJ Summary of Opinions

Fed Speakers Calendar

• Wednesday: Fed’s Daly, Collins, Cook
• Thursday: Fed’s Bostic, Musalem, RBA’s Connolly
• Friday: Fed’s Pill, Musalem
• Saturday: Fed’s Bowman

Week Ahead Outlook

The coming week centers on Thursday’s Bank of England decision amid the inflation-growth dilemma, while Tuesday’s ISM Services PMI could provide fresh USD direction following Friday’s employment shock. Trump’s unpredictable trade policy continues creating market volatility, with the August 7 universal tariff deadline adding uncertainty. Gold’s technical setup suggests potential for further gains if Fed rate cut expectations solidify, while currencies await clarification on central bank divergence themes.

Stock Earnings Highlights: McDonald’s (Wednesday), Caterpillar and Pfizer (Tuesday), Disney and Uber (Wednesday). Eli Lilly (Thursday) will test corporate resilience and tariff pressures.

Risk management remains critical given heightened volatility from central bank meetings, trade war developments, and potential for further Fed policy reassessment based on incoming data.