Market Looks to US Employment Report for Direction

Special report: NFP Preview

Today’s report: Market Looks to US Employment Report for Direction

A tame week for FX markets, with quarter-end flow failing to produce any major swings and currencies mostly comfortable trading within familiar ranges. Much of this could very well be a function of a data light calendar and positioning ahead of today's all important monthly employment report out of the US.

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Chart talk: Major markets technical overview video

Chart talk: Technical & fundamental highlights

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EURUSD – technical overview

The market remains well capped ahead of some key internal resistance in the 1.1400s. Overall, the medium-term downtrend remains firmly intact and the focus remains on the downside for a drop back towards the 1.0809 July base. Initial support comes in at 1.1087 and a break below will confirm and accelerate declines. Ultimately, only a close back above 1.1500 would negate and give reason for pause.

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  • R2 1.1330 – 21Sep high – Strong
  • R1 1.1296 – 24Sep high – Medium
  • S1 1.1135 – 1Oct low – Medium
  • S2 1.1087 – 3Sep low – Strong

EURUSD – fundamental overview

Price action in the Euro has been less than compelling this week, with the single currency mostly chopping around familiar levels, unwilling to commit in either direction. Any rallies have been well capped on softer Eurozone inflation and attempts to push equities higher, while at the same time, dips have been well supported on quarter end demand and broad based profit taking on USD longs. The lackluster trade is also a function of positioning ahead today’s all important monthly employment report out of the US. This will unquestionably be the key focus for the day, with the only other release of note coming in the form of Eurozone producer prices. Otherwise, the market may also be interested to hear what Fed Fischer has to say late in the day at 17:30 GMT.

GBPUSD – technical overview

Deeper setbacks are favoured over the coming sessions, with the major pair seen gravitating below recent key support at 1.5090 and towards the 1.5000 psychological barrier further down. Any rallies are now expected to be well capped below 1.5400, while ultimately, only a close back above 1.5700 (78.6% of recent high-low move) would negate the bearish outlook.

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  • R2 1.5289 – 24Sep low – Strong
  • R1 1.5214 – 30Sep high – Medium
  • S1 1.5090 – 4May low  – Strong
  • S2 1.5000 – Psychological  – Strong

GBPUSD – fundamental overview

The Pound has come under a good deal of pressure over the past couple of weeks, though setbacks have found some initial support in the 1.5100 area following above forecast UK manufacturing PMIs and a softer round of data out of the US on Thursday. Initial jobless claims came in higher, while ISM manufacturing disappointed. This fueled a mild round of profit taking on US Dollar longs into today’s all important monthly employment report out of the US. But overall, there have been good offers into rallies with the market focused on yield differentials and the likelihood for Fed liftoff in 2015. Today’s UK calendar features some secondary data in the form of construction PMIs, which will take a back seat to the US NFP report and a speech from Fed Fischer late in the day.

USDJPY – technical overview

The latest rally has been well capped ahead of 122.00 and a lower top is now sought out in favour of a resumption of declines back towards the recent extreme low at 116.12. The market has been showing range contraction over the past several days, which warns of a near-term pickup in volatility. At this point, only a daily close back above 122.00 would negate the short-term bearish outlook and put the pressure back on the topside.

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  • R2 121.23 – 25Sep high – Strong
  • R1 120.59 – 28Sep high – Medium
  • S1 119.23 – 24Sep low – Medium
  • S2 119.05 – 18Sep low – Strong

USDJPY – fundamental overview

Mixed early Friday Japan data has been shrugged off, after the jobless rate ticked up but household spending remained strong. Into the final day of trade for the week, the major pair has been confined to tight trade, with dips supported most recently on a recovery in equity markets, while rallies have been well capped on scaled back Japan QQE expansion bets and softer data out of the US in the form of initial jobless claims and ISM manufacturing. Looking ahead, the major focus for today will be on the highly anticipated monthly employment report out of the US, while a late day Fed Fischer speech should not be overlooked.

EURCHF – technical overview

The recovery outlook remains intact, with the price recently piercing through key resistance at 1.0962, confirming a medium-term higher low at 1.0714 and opening the next major upside extension towards a measured move objective in the 1.1200 area. Only back below 1.0714 would negate the constructive outlook.

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  • R2 1.1050 – 11Sep high – Strong
  • R1 1.0983 – 25Sep high – Medium
  • S1 1.0824 – 22Sep low – Medium
  • S2 1.0714 – 19Aug low – Strong

EURCHF – fundamental overview

Setbacks in this cross rate continue to be very well supported, with the market shrugging off softer Eurozone inflation readings this week, instead choosing to continue to prioritize a mild recovery in stock markets and ongoing SNB Franc rhetoric. Last week, Swiss economy minister Schneider-Ammann said the strong Franc endangered price stability, while adding that purchasing power parity in EURCHF was well above 1.20. Finally, he reminded the market the SNB was on the same page, working towards a weaker local currency.

AUDUSD – technical overview

The correction out from recent multi-year lows sub-0.7000 has stalled out, with the market now looking for the next lower top at 0.7280 ahead of a bearish continuation and fresh downside extension. Look for rallies to be well capped below 0.7200 on a daily close basis, while ultimately, only back above 0.7440 would compromise the bearish outlook.
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  • R2 0.7159 – 22Sep high – Strong
  • R1 0.7090 – 23Sep high – Medium
  • S1 0.6998 – 1Oct low – Medium
  • S2 0.6936 – 29Sep low – Strong

AUDUSD – fundamental overview

The Australian Dollar has been benefitting from a solid round of economic data this week which includes manufacturing PMIs, credit and house price growth, new home sales and the most recent as expected tick up in retail sales. All of this helps to further strengthen the case for an RBA rate hold next week and we have since seen decent profit taking on Aussie shorts. Thursday’s softer round of US initial jobless claims and ISM manufacturing has further contributed to the Aussie recovery, while a China holiday and rebound in US stocks is also propping the risk correlated currency into the end of the week. Looking ahead, the major focus for today will be on the monthly employment report out of the US, while a late day Fed Fischer speech should not be overlooked.

USDCAD – technical overview

The market is locked within a well defined uptrend, recently pushing to fresh 11-year highs and closing in on the next major psychological barrier at 1.3500. Ultimately, corrective declines should be well supported with a higher low sought out ideally above 1.3000 in favour of bullish continuation.

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  • R2 1.3372 – 29Sep low – Strong
  • R1 1.3332 – 1Oct high – Medium
  • S1 1.3218 – 1Oct low – Medium
  • S2 1.3176 – 21Sep low– Strong

USDCAD – fundamental overview

Stability in the price of OIL this week and a better than expected Canada GDP report have been sourced as primary drivers for an overdue, healthy recovery rally in the Canadian Dollar. The Loonie has managed to extend gains into Friday, following a softer round of Thursday US data featuring higher initial jobless claims and weaker ISM manufacturing. Looking ahead, the Canada economic calendar is empty on Friday and the main focus for the day will be on the monthly employment report out of the US. Also out late Friday is a speech from Fed Fischer which should not be overlooked.

NZDUSD – technical overview

The market remains under pressure, just off fresh multi-year lows, locked within a well defined downtrend. Deeper setbacks are favoured below 0.6130, with the break to open the next major downside extension through psychological barriers at 0.6000. Any rallies are viewed as corrective and ultimately, only a break back above 0.6740 would compromise the bearish structure.

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  • R2 0.6467 – 31Aug high– Strong
  • R1 0.6450 – 1Oct high– Medium
  • S1 0.6339 – 30Sep low – Medium
  • S2 0.6288 – 29Sep low – Strong

NZDUSD – fundamental overview

An improvement in global sentiment and some softer Thursday US data have contributed to a modest recovery in the New Zealand Dollar this week. Local data has also been helpful to Kiwi’s cause following improvements in ANZ business confidence and the activity outlook. Overall however, the market won’t get too ahead of itself, with macro dynamics still not supportive of meaningful Kiwi rallies. Dealers cite plenty of offers into rallies and with today US NFP report expected to produce healthy readings, yield differentials should once again weigh on Kiwi as the 2015 Fed liftoff prospect is further cemented. Also out late in the day is a speech from Fed Fischer which should not be overlooked.

US SPX 500 – technical overview

The market has been locked in some choppy consolidation following the sharp pullback from record high territory several days back. The breakdown reflects a major structural shift in the works, with deeper setbacks now favoured over the coming days and weeks. The recent rebound out from the 1830 area low has been well capped above 2000 and a fresh lower top is now sought out ahead of a bearish continuation below 1830. Only a daily close back above 2022 would delay the bearish outlook.

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  • R2 1962.00 – 25Sep high – Strong
  • R1 1939.00 – 1Oct high – Medium
  • S1 1870.00 – 29Sep low – Medium
  • S2 1833.00 – 24Aug low – Strong

US SPX 500 – fundamental overview

The combination of an expectation for a Fed rate hike in 2015 along with an ongoing concern over the outlook for the global economy, is not a combination that lends itself to sustained equity market strength, with this week’s stock market rebound expected to find formidable offers into additional rallies. Fed Williams was out on the wires on Thursday, further cementing his strong view the Fed would be looking to move on rates this year. Looking ahead, today’s volatility in the market will be inspired by the highly anticipated monthly employment report out of the US, while a late day Fed Fischer speech could also influence price action.

GOLD (SPOT) – technical overview

The latest impressive recovery out from the 1100 area suggests the market is in the process of carving a meaningful higher low ahead of the next major upside extension through 1170. Look for a break above 1170 to confirm and open an acceleration back towards medium-term resistance at 1233. Only a close below 1100 negates. 

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  • R2 1200.00 – Psychological – Medium
  • R1 1170.00 – 24Aug high – Strong
  • S1 1099.00 – 11Sep low – Medium
  • S2 1073.00 – 20Jul/2015 low – Strong

GOLD (SPOT) – fundamental overview

GOLD has been very well supported on dips in recent trade, with the market finding demand ahead of $1100. Broad based risk liquidation and overall downside pressure in equity markets have inspired safe haven buying, with the yellow metal standing out as a primary candidate of these flows. Gold has given back some recent gains on a mild recovery in stocks this week, but dealers cite plenty of demand on dips, with no stops seen until below $1100. Today’s volatility in the yellow metal is likely to come from the reaction to the monthly employment report out of the US. A late day Fed Fischer speech could also influence direction into the weekly close.

Feature – technical overview

USDZAR uptrend remains firmly intact with the market pushing to yet another record high. A higher low is now sought out above 13.0000 ahead of the next major upside extension and bullish continuation towards 15.0000. Ultimately, only a daily close below 13.0000 would delay the highly constructive outlook.

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  • R2 14.2000 – Figure – Medium
  • R1 14.1590 –29Sep/Record – Strong
  • S1 13.7180 – 1Oct low – Medium
  • S2 13.1650 – 17Sep low – Strong

Feature – fundamental overview

A wider than expected South Africa trade deficit and manufacturing PMIs still sitting in contractionary territory are helping to contain a mild recovery in the Rand off this week’s record lows. The Rand had been in recovery mode in the mid-week, with the currency finding some welcome relief on an overall improvement in global risk sentiment, with stocks recovery off the lows. Still, much of the recovery in sentiment has been attributed to some quarter-end flows and with the Fed on course to raise rates this year, yield differentials are likely to come back into play, which ultimately should drive additional ZAR underperformance. Clearly the focus for today will be on the reaction to the monthly employment report out of the US. A speech from Fed Fischer should also not be overlooked.

Peformance chart: Five day performance v. US dollar

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