Today, all eyes will be on the pending US jobs data. Amid a good ADP read on Wednesday, the consensus for the NFP is a strong 201k (vs. 173k last month) with stable unemployment rate (5.1%) and higher wages (2.4%y/y versus 2.2%y/y in August). Given the historical pattern, there is a good chance that the 173k for August will be revised higher. It has been a quiet week in the FX market as traders remained on the sideline ahead of today’s highly sensitive job report. A stronger read would revive expectations for a rate hike in December. After losing almost 50bps, US 10-year bonds stabilised slightly above the 2% threshold, around 2.0473%. The policy-sensitive 2-year yield has been unable to successfully break its 200-dma to the downside and is now moving higher, up 3.5bps from Wednesday’s low. EUR/USD is treading water around 1.12 as traders consolidate their positions ahead of the job report. The market is still in shock from the FOMC rate decision and seems reluctant to place any bets before the US NFP read.
***Yann Quelenn, Market Analyst, Swissquote: “Growth in the construction and service sectors should drive Nonfarm Payroll data higher. These are expected today. The consensus is at +201k jobs for September, up from August’s +173k. Two days ago, the ADP jobs data printed above expectations so there’s an increased chance of today’s NFP printing higher. The Fed is still waiting for more supportive data to raise rates. A strong read would also give officials some relief. It has indeed been a while since the Fed has dropped hints about the timing of the rate hike. It’s starting to become difficult to trust the central bank. It is, however, true that markets are still pricing in a rate hike later this year. The likelihood for October is low. Calculations are showing a 16% probability for this month. Yet, traders are still hoping that December will finally end the zero interest-rate policy. The odds are slightly below 50%. On our side, we still believe that a rate hike before year-end is on the cards and we have always maintained this position even when the market was against us in June. The fundamentals remain just far too weak and the debt too large. Meanwhile, Fed officials repeat that inflation is the key deciding factor for a change to the monetary policy. We will be closely watching today’s wages data. An upside move would put pressure on inflation and push the Fed to move rates higher. Nonetheless, we remain bearish on the EURUSD as possible expansion of the ECB QE pushes the pair downside. In addition, the dollar is driven higher as there are still important US recovery expectations despite increased selling pressures on the dollar as the Fed continues to delay its first rate hike. This is not the case for the single currency for which a rate hike is not foreseen before 2018.” ***
USD/JPY fell to 119.50 in New York yesterday before recovering to 120.03 in Tokyo. Overall, the pair continues to trade sideways, right in the middle of its 1-month range. US jobs data will determine whether it is time to pull out resistance and challenge the few supports lying on the downside between 119.06 and 117.85.
USD/CHF is back above 0.9770 after pairing losses due to weak economic data from the US yesterday. Initial jobless claims came in at 277k versus 271k expected, ISM manufacturing printed at 50.2 versus 50.6 expected and 51.1 last month. Finally, ISM price paid came in at 38 versus 40 median forecast and 39 the previous month. EUR/CHF holds ground above the 50-dma (1.08393), trading at 1.0925 this morning.
In Brazil, USD/BRL stabilised around 4.00 as 1-month implied volatility settled down somewhat to 26.25% from 28.44% a few days ago. The BRL was also helped by a solid Markit PMI manufacturing print of 47 versus 45.8 last month and the prospect of a potential marginal interest rate hike by the BCB.
In the equity market, returns were mixed in Wall Street yesterday. The S&P 500 gained 0.320%, the Nasdaq 0.15%, while the Dow Jones Industrial Average edged down -0.08%. This morning in Asia, the Nikkei and the Topix index are blinking green, up 0.2% and 0.15% respectively. Hong Kong’s Hang Seng rallied in post-holiday catch-up, rising 2.78% during the session. Australian shares are down 1.18%, while in New Zealand, the S&P/NZX edged up 0.14%. In Europe, futures are broadly higher, pointing toward a higher open for most indices. The Euro Stoxx 50 is up +0.95%, the DAX +0.88%, the CAC 40 +1.09% and the SMI 0.69%.
Besides US jobs, traders will be watching Norwegian September unemployment rate, UK Markit/CIPS construction PMI, euro zone August PPI m/m & y/y and US August factory order m/m.