US employment report in focus

The USD edged higher and stabilised against its counterparts yesterday, ahead of the release of the US employment report for August. We note that the market’s expectations may have been enhanced especially for the NFP figure to come in lower, after the wider-than-expected drop of the ADP figure for the same month, which implied that hiring in the private sector slowed down. Today we highlight the release of the US employment report for August and the NFP figure is expected to drop implying a continuance of the weakening of the US economy’s ability to actually create new positions, while the unemployment rate is expected to remain unchanged at 3.5%, implying that the US employment market remains tight. Furthermore, the average earnings growth rate is expected to remain unchanged at 4.4% yoy implying that the US employment market may continue feeding inflationary pressures in the US economy. For the time being, we expect to have mixed signals from the release, yet note that the drop of the NFP figure may disappoint traders especially should it be wider than expected thus weakening the USD, yet there is wide uncertainty for the actual rates and figures to be released. The release could increase volatility substantially for USD pairs hence caution is advisable if one should trade at that time. We highlight that the release may have wider ripple effects beyond the FX market and should data show an easing of the US employment market we may see support rising for US stock markets and gold’s price and vice versa.

On a technical level, we note that JPY strengthened a bit against the USD, yet the overall picture of a sideways motion remains unchanged, between the 146.60 (R1) resistance level and the 145.10 (S1) support line. For the time being, we tend to maintain a bias for the sideways motion of the pair yet also note that the RSI indicator is nearing the reading of 30 implying a build-up of a bearish sentiment in the market. For a bearish outlook, we would require USD/JPY to drop, break the 145.10 (S1) support line and aim for the 143.35 (S2) support level. For a bullish outlook, we would require the pair the clearly break the 146.60 (R1) resistance line and start aiming for the 148.80 (R2) resistance base.

North of the US border we note the release of Canada’s GDP rate for Q2 which is expected to slow down considerably, and if actually so could weaken the CAD. CAD traders on the other hand keep a close eye also over oil prices which continue to be on the rise and were pushed higher by a tight supply side, while market worries for the economic outlook of China, a major oil consumer intensify worries for the demand side of the commodity and tend to clip any further gains for oil’s price. Should oil prices continue to rise we may see the CAD benefiting, given that Canada is a major oil-producing economy.

USD/CAD edged lower yesterday placing some distance between the 1.3565 (R1) resistance line and the price action. Given that the downward trendline seems to be dominating the pair’s direction and the RSI indicator is near the reading of 30, implying a rather bearish sentiment for the pair we tend to maintain a bearish outlook for USD/CAD. Should sellers actually maintain control over USD/CAD, we may see the pair breaking the 1.3450 (S1) support line and aim for the 1.3335 (S2) support level. Should the buyers take over, we may see USD/CAD breaking the downward trendline, the 1.3565 (R1) line and aim for the 1.3650 (R2) level.

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Today, we note from the UK the release of the Nationwide house prices and final manufacturing PMI figure, Germany’s final manufacturing PMI and Switzerland’s CPI rates all being for August. From the US besides the US employment report for August, we get the ISM manufacturing PMI figure for August and from Canada the GDP rate for Q2. On the monetary front please note that Atlanta Fed President Bostic and Cleveland Fed President Mester are scheduled to speak.