Good News Was Bad News Again

📰 Here’s the number that changed the mood this week: 162,000.

That’s how many jobs the US economy added in August, almost three times the 55,000 expected. Unemployment also stayed unchanged at 4.1%. On its own, that looks like good news. But for markets, it created a new problem.

Going into Friday, traders were becoming less convinced that the Federal Reserve would need to raise rates again in September. The thinking was simple: if inflation keeps cooling and the economy starts slowing, the Fed can afford to stay patient. Then the jobs report landed. Within minutes, US bond yields jumped, the dollar strengthened, gold slipped, and stocks moved lower. Why? Because a strong jobs market gives the Fed more room to keep interest rates high, or even tighten further if inflation refuses to come down.

So once again, good economic news became bad news for markets. And this was only the start. The next two weeks bring a packed run of major events: the ECB on September 10, US CPI on September 11, the Federal Reserve on September 16, and the Bank of Japan on September 17–18.

That’s why markets are currently hesitant to make any major move. Traders are waiting for these decisions before committing heavily in either direction.

So, let’s break down what is driving each market heading into this important stretch.

For the past few weeks, the focus was a hawkish Fed against a steady ECB, which supported the dollar. Now Europe has its own inflation problem. Euro-area inflation jumped to 3.3% in August, helped by sharply higher energy prices. That has brought the possibility of an ECB rate hike back into the conversation ahead of its September 10 meeting.

So instead of just the Fed turning hawkish, we now have both central banks facing reasons to keep rates higher: the US because of strong jobs, and Europe because of rising inflation.

EUR/USD is currently trading around 1.1614, with the ECB and US CPI likely to decide the next move.

Here’s where our position actually stands, and it’s better than we made clear last week. Both entries from Sunday’s setup were triggered as price pushed back into supply before rolling over. The trade has remained in profit since.

So position one is closed, and position two is a free roll toward that target.

With the ECB and US CPI both coming this week, we’re not adding to the trade or forcing a new bias. Both events could move EUR/USD in opposite directions, so for now we’re simply letting the free-roll position run and waiting for the data.

The yen had one of its strongest weeks in months, with USD/JPY around 156.25, before Friday’s US jobs report gave the dollar some strength back.

But this story is mostly about Japan, not the Fed. The BOJ is becoming more open to raising rates faster, with some analysts even discussing a larger hike at its September 17-18 meeting. That would support the yen and help control inflation.

The problem is that Japan’s government is also planning a major spending push. Higher interest rates would make that spending more expensive to finance. That leaves Japan caught between supporting the yen and supporting the economy, and that tension is likely to drive USD/JPY into the BOJ meeting.

In our August 17 issue, we called a short on USD/JPY from the 159.50–160.80 zone, targeting 156.80 and then the 155 zone. That is exactly how the move played out, with price dropping through both targets and reaching the 155.30 area this week.

That’s also why we’re not chasing the move lower here. Price is already sitting near our reaction low, while the 159.00-160.60 resistance zone remains overhead. For now, a bounce back toward that area looks more likely than a clean breakdown. The exception would be a genuinely hawkish BOJ on September 17-18, which could push USD/JPY through 155 with momentum.

Until then, the BOJ and any intervention talk from Tokyo remain the key drivers.

Gold went against our bias last week. We were looking for more downside after the short we highlighted in our last issue, but instead gold reversed sharply and closed Friday around $4,513. Simply put, we got that one wrong.

The reason gold is difficult to read right now is that two forces are pulling it in opposite directions. A stronger dollar and higher rate expectations are negative for gold, while Middle East tensions and safe-haven demand continue to support it. Last week, the second force won.

This week, we’d rather wait than force another bias. The key event is US CPI on September 11. A hotter inflation number could bring rate-hike expectations back and pressure gold, while a softer reading could give it room to move higher again.

For now, we’re watching how price opens and letting the data decide the next move.

Futures are still sitting near their highs, with NQ around 29,540 and ES around 7,722.

Friday’s strong jobs report pushed bond yields higher and briefly knocked stocks lower, but the market quickly stabilized. That leaves equities caught between two stories.

Strong jobs data means the Fed has more room to keep rates high or even hike again, which is a risk for stocks. But at the same time, it shows the US economy is still holding up, and that has helped stop any major selloff.

There was also an interesting signal from Broadcom this week. The company posted huge growth in revenue and AI sales and raised its future outlook, yet the stock barely moved. That tells us something important about the current AI rally: expectations are already extremely high. When even very strong earnings are not enough to push a stock higher, it can be a warning that a lot of the good news is already priced in.

So Technically, on the H1 chart, here's what we're watching:

Two ways we'd read this from here:

For now, 29,317 is the key level, with CPI and the Fed likely deciding the bigger move.

Four major decisions, eleven days, and almost every market in this letter is waiting for one of them.

Gold went against our bias last week, so we’re not forcing another call before the data. EUR/USD now has a hawkish Fed and ECB pulling against each other. USD/JPY hit the targets from our August 17 setup, and the next move now depends heavily on the BOJ. Even Broadcom’s huge AI earnings barely moved the stock, showing just how much optimism is already priced into equities.

This week, the edge isn’t about picking a direction early.

It’s about knowing what is driving each market, and which event actually changes the story.

Stay safe, and as always… Happy Trading!

— The UE Market Letter Team 👁️‍🗨️

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