It's jobs Friday! NFP/Cdn employment on deck. $USD shorts to get tested further. $EUR $GBP $CAD $AUD $JPY

Summary

• Hawkish comments from the Fed’s Harker, dovish comments from the RBA’s Harper, worse than expected Canadian trade figures yesterday and on the ongoing political turmoil for the UK’s Theresa May put the screws to USD shorts yesterday.  Instead of the typical pre-NFP range trade, we saw markets uncomfortably extending ranges, putting the net aggregate USD short (reported on Monday as the largest since 2012) in a nauseating position going into today’s data.

• Markets expecting +80-90k for US payrolls, +12k for Canada employment figures.

• With the exception of GBP, options markets are subdued with most ATM straddles not showing much interest going into these numbers.  Combine that with large EUR expiries going into 10am, an USDJPY options market that is reportedly already long gamma and the market might not give us the usual fireworks we’re used to seeing post NFP.

• CME open interest changes 10/5: AUD -381, GBP +975, CAD +2082, EUR -337, JPY +3465

Currency Calendar

Bank holidays and impactful report releases for select countries.

By The Numbers: Daily FX Snapshot

AUD/USD - Australian Dollar

Spot tested support at 0.7990-7800 yesterday, but it gave way during Asian trading as a WSJ article quoted the RBA’s Harper “still not ruling out rate cut”.  Market carved out a low in the 0.7740s (weekly highs extending back to 2016) and is trying to recover.  Now $1.4bln AUD option expiry at 78 strike post NFP.  Charts now looking decidedly bearish unless the market can wipe out Thursday’s losses.  Markets are net long AUD.

GBP/USD - British Pound

Sterling is headed for its worst week in a year as the UK’s political turmoil is completely overwhelming the BOE rate hike narrative.  The charts are still not offering anything up in the way of serious support around current levels, perhaps some in the 1.2980-1.3020 area.  EURGBP looks set to test the 90 handle.  Option traders have given up on the bull thesis with 1mth risk reversals now showing a bias for puts (see chart).  GBPJPY still hugging the 147s (the level it broke out from a few weeks ago).  Market positioning probably net short again now after this week’s move.

EUR/USD - European Central Bank Euro

The Euro probed lower overnight but has since recovered most of its losses going into the NY session.  Now $6bln EUR in expiries 1.1640-1.1750 to deal with post NFP so market could be a little sticky (not want to shoot decidedly one way or the other).  EURJPY continues to hold its weekly range.  Markets still net long EURs.  A rally back above 1.1780s (erasing yesterday’s range) would change the technical picture short term.

USD/CAD - Canadian Dollar

The wider than expected Cdn trade deficit figures announced yesterday had a bigger effect on the markets than anticipated.  Combine that with hawkish comments from the Fed’s Harker regarding a December rate hike and what still appears to be a crowded USD short trade, the market ran higher to test the Aug 31 range.  We now sit just below the London highs.  Light support 1.2510-20.  Not much resistance at all until the high 1.26s.  Interesting to note open interest up for CAD futures yesterday (shows conviction…perhaps new shorts?).

USD/JPY - Japanese Yen

Dollar/yen has renewed its upward march after regaining the 112.70 level we mentioned yesterday.  Higher US yields and a US stock market that keeps marching higher continue to provide support (7 record closes in a row).  Hearing talk overnight of continued interest to sell (offers) around the 113 level, however buy stops noted above 113.30.  Light support 112.60-70, better 112.30s.  Markets continue to be confidently net long USD (short JPY) going into the numbers this morning.

Market Analysis Charts

GBP/USD Chart

GBP/USD Chart - Risk Reversal

Charts: Reuters

EUR/USD Chart

USD/CAD Chart

Charts: TWS Workstation

About the Author

Erik Bregar - Trader

Erik works with corporations and institutions to help them better navigate the currency markets. His desk provides fast, transparent, and low cost trade execution; up to the minute fundamental and technical market analysis; custom strategy development; and post-trade services -- all in an effort to add value to your firm’s bottom line. Erik has been trading currencies professionally and independently for more than 12 years. Prior to leading the trading desk at EBC, Erik was in charge of managing the foreign exchange risk for one of Canada’s largest independent broker-dealers.

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