Today’s report: History Not on NFPs Side
UK construction PMIs aren't always a major focus, but after Thursday's UK manufacturing PMI beat and relative outperformance in the Pound, the market will be interested to see what comes of this data. But of course, the major highlight in Friday trade will be the US monthly employment report.
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EURUSD
GBPUSD
USDJPY
EURCHF
AUDUSD
USDCAD
NZDUSD
US SPX 500
GOLD
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employment report
construction PMIs
more easing
Tough road
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EURUSD – technical overview
The broader downtrend remains firmly intact, with the recent close back below the 100-Day SMA ending a period of corrective activity, setting the stage for the next major downside extension towards 1.0900. Look for a fresh lower top in place at 1.1367, while ultimately, only above 1.1428 negates the bearish outlook.
R2 1.1246 – 24Aug low – Medium
R1 1.1208 – 29Aug high – Strong
S1 1.1124 – 31Aug low – Medium
S2 1.1046 – 5Aug low – Strong
EURUSD – fundamental overview
Without question, today’s major highlight will be the monthly employment report out of the US. Estimates center on a 180k NFP print with the unemployment rate projected to dip down to 4.8%. Wage growth will also be a major component, with any higher print here to give Fed hawks more of an excuse to look to normalize policy further. Into the data, there have been many calls for a dissapoitning report, with history also on this side as each employment report in September dating back to 2011 has been a letdown. If this is confirmed, it will leave the door open for a push higher in the Euro. We also get Eurozone producer prices today, though this reading is unlikely to factor into price action. US trade data is also scheduled for release.
GBPUSD – technical overview
The market remains confined to an intense downtrend and is in the process of consolidating just off the recent +30-year low from July. Any rallies are classified as corrective ahead of what should be the next major break below 1.2800 and towards 1.2500. Only back above 1.3372 will take the immediate pressure off the downside and force a shift in the structure.
R2 1.3372 – 3Aug high – Strong
R1 1.3317 – 1Sep high – Medium
S1 1.3158 – 31Aug high – Medium
S2 1.3023 – 19Aug low – Strong
GBPUSD – fundamental overview
The Pound is the strongest currency over the past week. UK construction PMIs aren't always a major focus, but after Thursday's UK manufacturing PMI beat and relative outperformance in the Pound, the market will be interested to see what comes of this data and if it helps propel the Cable rate towards critical range resistance in the 1.3500 area. The market has been overwhelmingly short Sterling which could imply a further unwinding of these positions going forward and a paring back of BOE easing expectations if UK data continues to impress. We have also seen US data moving in the opposite direction after US ISM manufacturing disappointed. And so, if we get a UK construction PMI beat followed by a disappointing US employment report, the Pound could really take off. US trade data is also due and should not be overlooked.
USDJPY – technical overview
Although we’ve seen an impressive bounce in recent trade, overall, the pressure remains on the downside with a lower top sought out ahead of 107.49 in favour of the next major downside extension below the recent yearly and multi-month low at 98.99. At this point, only a break back above 105.00 would delay this outlook and give reason for pause. Below 99.00 exposes the next major support level in the 95.00 area.
R2 105.64 – 29Jul high – Strong
R1 104.00 – 1Sep high – Medium
S1 102.86 – 31Aug low – Medium
S2 101.75 – 30Aug low – Strong
USDJPY – fundamental overview
Takatoshi Ito was out in a Bloomberg spot early Friday offering his view that he expects some kind of additional easing this month and that he feels it should be in the form of deeper negative rates. However, BOJ Sakurai has offset some of the dovishness here, voicing his concern with reckless easing. But with US NFPs on tap, the market is rather subdued and probably won’t be wanting to move to much until the data is out. US trade data is also out.
EURCHF – technical overview
Not much doing here over the past several days, with the market confined to a range trade, roughly between 1.0800 and 1.1000. At this point, a daily close above 1.1000 or back below 1.0800 will be required for clearer directional insight. Until then, look for dips to be supported and rallies well capped.
R2 1.1014 – 24Jun high – Strong
R1 1.1001 – 1Sep high – Medium
S1 1.0870 – 24Aug low – Medium
S2 1.0778 – 16Jun low – Strong
EURCHF – fundamental overview
SNB smoothing activity to prop the EURCHF rate has been helping to elevate the cross, but at the same time, any upside moves haven’t been sustainable with the cross rate continuing to get sold aggressively into rallies towards 1.1000. Overall, this is a market going nowhere right now and it seems stops need to get taken out below 1.0750 or above 1.1000 for clearer insight. US stocks have been supporting EURCHF but are also looking extended which could invite Franc demand if the market starts to roll over from record highs in the sessions ahead.
AUDUSD – technical overview
The market has struggled on rallies above 0.7700 and this suggests the rate could be looking to carve a lower top below the 2016 high at 0.7835 in favour of the next major downside extension. The recent break back below 0.7637 strengthens this outlook and should accelerate declines towards 0.7400 in the sessions ahead. Ultimately, only back above 0.7758 will negate the newly adopted bearish outlook and invite a retest of the 2016 highs.
R2 0.7693 – 26Aug high – Strong
R1 0.7582 – 29Aug high – Medium
S1 0.7491 –31Aug low – Medium
S2 0.7421 –27Jul low – Strong
AUDUSD – fundamental overview
The Australian Dollar is coming off a solid showing in Thursday trade, with the currency benefiting from a soft round of US ISM manufacturing. Of course, the main focus right now is the outcome of today’s US employment report, with the results to likely have an influence over Aussie’s trajectory depending on which way it has the Fed leaning in the aftermath. US trade data is also due later today.
USDCAD – technical overview
This market looks to be in the process of carving out a longer-term base off the 1.2461, 2016 low. Look for any additional weakness to be supported ahead of 1.2655 in favour of the next major upside extension towards a measured move objective into the 1.3500-1.4000 area. Ultimately, only back below 1.2655 would delay the constructive outlook.
R2 1.3201 – 5Aug high – Strong
R1 1.3148 – 1Sep high – Medium
S1 1.3010 – 30Aug low – Medium
S2 1.2831 – 26Aug low – Strong
USDCAD – fundamental overview
Only the Yen has been weaker against the US Dollar over the past week, with the Loonie taking its hits from this latest slide in the price of OIL. Even Thursday’s broad based US Dollar selloff on the back of a weaker than expected US ISM manufacturing print, did very little to inspire any gains in the Loonie. Looking ahead, we get Canada labour productivity and trade, along with US trade and the highly anticipated US monthly employment report.
NZDUSD – technical overview
Rallies to fresh 2016 highs above 0.7300 have been well capped, with the market looking to adhere to the broader downtrend. As such, look for this latest surge to once again fizzle out, in favour of a resumption of declines. Key support now comes in at 0.7087, but a break below 0.7199 will get things going to the downside.
R2 0.7381 – 26Aug/2016 high – Strong
R1 0.7300 – Figure – Medium
S1 0.7199 – 16Aug low – Medium
S2 0.7087 – 8Aug low – Strong
NZDUSD – fundamental overview
The New Zealand Dollar is the second best performing currency over the past week into Friday trade. There hasn’t been a whole lot that one could attribute to Kiwi’s solid performance, though clearly a wave of US Dollar declines on Thursday following the discouraging US ISM manufacturing print has factored into the Kiwi bid. Looking ahead, the US employment report will get most of the attention, while US trade is also scheduled for release.
US SPX 500 – technical overview
Signs of a potential top after the market put in a bearish reversal week off fresh record highs. But a break and daily close below critical support at 2147 will be required to strengthen this outlook and accelerate declines. Inability to establish below 2147 will leave the market consolidating and focused on a push to fresh record highs through 2200.
R2 2200.00 – Psychological – Strong
R1 2194.00 – 15Aug/Record – Medium
S1 2147.00 –2Aug low – Medium
S2 2136.00 – 12Jul low– Strong
US SPX 500 – fundamental overview
US equities have come under pressure off record highs following this latest wave of hawkish commentary signaling the possibility for a rate hike as soon as September. But overall, there is a sense that even if the Fed ends up doing nothing in 2016 and holds off, with monetary policy already exhausted and the limitations of policy being reached, there is still the risk for a more intense period of weakness off the recently established record highs. Looking ahead, Friday trade is all about the monthly employment report, though US trade data is also scheduled for release.
GOLD (SPOT) – technical overview
The market has come under pressure over the past several weeks and is now gravitating back towards the 100-Day SMA just below 1300. But overall, the structure remains highly constructive and the current dip is viewed as nothing more than a healthy correction within a broader uptrend. As such, look for additional setbacks to be limited in favour of the next major higher low and fresh upside extension beyond the 2016 peak at 1375. Ultimately, only below 1250 gives reason for concern.
R2 1358.10 – 16Aug high – Strong
R1 1344.80 – 23Aug high – Medium
S1 1302.50 – 1Sep low – Medium
S2 1296.50 – 100-Day SMA – Strong
GOLD (SPOT) – fundamental overview
Overall, GOLD has been very well supported in 2016, with the yellow metal finding solid demand from medium and longer-term players on the back of fears over the limitations of exhausted monetary policy and extended global equities. All of this will almost certainly continue to keep the commodity in demand, with many market participants fleeing to the hard asset as the grand dichotomy of record high equities and record low yields comes to an unnerving climax.
Feature – technical overview
USDZAR has come under a good deal of pressure in recent months, trading down to a fresh 2016 low around 13.2000. However, it now appears as though the market is finally ready to turn back up in favour of a resumption of the broader uptrend. In the interim, look for any setbacks to be well supported ahead of 13.2000, with fresh upside seen towards 15.0000 in the sessions ahead. Only back below 13.2000 gives reason for pause.
R2 15.0000 – Psychological – Strong
R1 14.9540 – 6Jul high – Medium
S1 13.8850 – 24Aug low – Medium
S2 13.2000 – 10Aug/2016 low – Strong
Feature – fundamental overview
Thursday was a friend to the Rand, which hasn’t been performing well in recent days on the back of political scandal, news of a South African fund manager pulling its lending, weaker South Africa trade data and worry of a potential South Africa ratings downgrade to junk. It seems the Rand was able to recover a bit, mostly on position squaring into today’s monthly employment report out of the US. The US Dollar also took a big hit on Thursday which was helpful to the Rand, with the softer US data offsetting a South African manufacturing PMI miss, after this series slipped back into contraction territory for the first time in 6 months. The emerging market currency will be anxious to see what comes of US NFPs and how risk markets take it all in.
Peformance chart: Five day performance v. US dollar
Wake-Up Call
Suggested reading
Magical Thinking, B. Hunt, Salient Partners (September 1, 2016)
The Huge Gap in the BOJ’s Balance Sheet, J. Mayger, Bloomberg (August 31, 2016)
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