Traders bracing for weak US September NFP numbers

SUMMARY

ANALYSIS

USDCAD

Traders are anxiously awaiting the US Non-Farms payrolls figures for September this morning at 8:30amET, after the employment components of both the Manufacturing and Services ISM reports this week, and the downward revision to August job growth in the ADP report, showed worrying signs for the US job market.  The “Fed rate cut trade” has been on fire this week as a result; with the US 10yr yield now down over 20bps from their JGB-drama highs, the October Fed fund futures now at an 83% chance of a 25bp cut on Oct 30 vs 50% at the start of the week, the December Eurodollar futures now at a 1.82% implied funds rate, and with December gold futures now comfortably back above the $1500 mark.  USDCAD has shown an interesting response to this week’s events, despite broad USD sales.  The market is reacting negatively to the disappointment US economic headlines, but as soon as this triggers a “risk-off” move in the stock and oil markets, the market adopts its typical “flight to quality” bid, and we saw this on big display on Wednesday and to a slightly lesser extent yesterday.  The expectations for today’s NFP report are as follows: +145k new jobs (although we’re hearing rumors it could be a lot lower), +0.3% MoM and +3.2% YoY growth in wages, and 3.7% on the unemployment rate.  Chart resistance today comes in at the 1.3330s, then the 1.3380-90s.  Support resides at 1.3280-1.3300, then the 1.3220s.

USDCAD DAILY

USDCAD HOURLY

NOV CRUDE OIL DAILY

EURUSD

Euro/dollar continues to benefit from the market’s rush back into the “Fed rate cut trade” this week, and the way the market technicals are looking right now (positive with a break back above trend-line resistance at 1.0980), it looks like it could take off to the upside should we get a disappointing US NFP number shortly.  Larry Kudlow will be speaking on Bloomberg at 9:30amET.  Over 1blnUSD in options expire above the market at 10amET (1.1000-1.1020).  We’ll also have plenty more Fed speak to digest today, the most important being some opening remarks at an event hosted by Jerome Powell later at 2pmET.

EURUSD DAILY

EURUSD HOURLY

DEC GOLD DAILY

GBPUSD

Sterling is hovering above chart support at the 1.2310s ahead of the US NFP release.  Yesterday’s explosive rally up to the 1.2400 level on the back of the weak US Non-Manufacturing numbers seemed a bit hasty in our opinion, especially considering Boris Johnson’s new Irish backstop plan has not been well received by the EU.  It’s now being reported that the UK Prime Minister has one week to make the EU a better offer.  More here from the UK’s Daily Mail.

GBPUSD DAILY

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EURGBP DAILY

AUDUSD

 All the broad USD selling that has accompanied this week’s rush to price-in more Fed cuts has allowed AUDUSD to now trade above chart resistance at the 0.6750 level.  Last night’s slightly weaker than expected Australian Retail Sales report for August (+0.4% MoM vs +0.5%) doesn’t seem be bothering anyone.  Like EURUSD, we think the Aussie’s current technical setup will allow for further price gains should the US NFP report miss market expectations shortly.  The next chart resistance level lies in the 0.6780s.  Support today is 0.6725.

AUDUSD DAILY

AUDUSD HOURLY

USDCNH DAILY

USDJPY

USDJPY just can’t catch a break since the dismal US Manufacturing ISM number came out on Tuesday, and we think the losses could intensify here if the US NFP report comes in weak.  The market has fallen below chart support at the 106.90s, which we think could now expose the market to the low 106s.

USDJPY DAILY

USDJPY HOURLY

US 10YR BOND YIELD DAILY

Charts: Reuters Eikon

About the Author

Erik Bregar - Director, Head of FX Strategy

 

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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