Market Overview
It is Non-farm Payrolls day and markets are looking ahead to what could be a volatile afternoon in the wake of the strong recent gains on the US dollar. The approach to this month’s payrolls has been somewhat different to previous months where the market has tended to be cautious. Far from it, the market has been decisively buying the dollar and selling safe haven plays such as the yen, gold and Treasuries. It is possible that there could be a degree of settling down in front of the announcement (Dollar/Yen is showing signs of a pause at least) but the market is strongly pro-dollar at the moment. One currency it is certainly not pro is sterling, which suffered a precipitous decline overnight with a flash-crash to $1.1819. Bearing in mind there was no news to trigger the sell-off this looks to have been a fat-finger trade and the market has quickly unwound back, but still well below the $1.2600 area it was trading just prior to the move. Sterling weakness has a residual knock on impact also on the FTSE 100 which is strong again this morning, which comes despite the fairly neutral state across other major indices ahead of payrolls.
Wall Street closed almost dead flat with just 0.1% gain whilst Asian markets were also mixed around neutral, so FTSE 100 aside there seems to be a very mildly positive early move in front of Non-farm Payrolls this afternoon. In forex, the strong dollar move of yesterday is showing little sign of ending quite yet, although the yen is a very slight outperformer. Sterling trading down by around 150 pips is clearly the big underperformer of the day, with the euro lower to test the key near term floor at $1.1120. The dollar strength is again acting as a drag on the precious metals, whilst the other consistent outperforming trade, oil, is around flat on the day.
The US Employment Situation Report at 1330BST is the key focus for today. The headline expectation for Non-farm Payrolls is 175,000 (up from 151,000 last month) which would constitute a fairly solid to positive number. The unemployment rate will be interesting to watch too, expected at 4.9% in conjunction with the Labor Force Participation rate which was 62.8%. The hawks would want to see the participation rate rising and unemployment falling to show a tightening of the labor market. Also watch the average hourly earnings which is expected to grow by +0.2% on the month which is expected to pick up to +2.5%. A strong payrolls report today would both be positive for the dollar and also risk appetite (as the market is fairly settled now that the Fed will rise in December). The yen, gold and Treasuries would be the clear losers out of a strong payrolls report. Other than that, the announcement of UK industrial production at 0930BST with the expectation of +1.3% for the year.
Lucky 8 – FX Trader of the Year 2016 competition update
I am continuing to look at the markets covered in Week 1 of our competition that we are running throughout October. I will be giving daily updates on how the Lucky 8 instruments of the week are performing.
- USD/JPY – A move towards 104.30 remains on despite the slight dip overnight and the likely consolidation now in front of Non-farm Payrolls. The hourly chart shows support continues to come in at higher levels with the breakout at 103.35 initially supportive. I remain a buyer into weakness for this run higher but be careful today as it is Non-farm Payrolls on which Dollar/Yen is especially responsive. Trade in the direction of the surprise. (see below for more detail).
- AUD/USD – The Aussie continues to break the near term supports with $0.7580 now having been breached. Lower highs and lower lows continue to be posted, with negative momentum configuration across the hourly indicators. Payrolls will drive volatility this afternoon. Resistance in the band $0.7580/$0.7600 initially and then $0.7645. Support at $0.7530.
- AUD/NZD – The bulls have managed to re-assert at 1.0570 above the 1.0550/60 band. The move looks to be a dip as a buying opportunity to retest 1.0635 and a possible breakout.
- GBP/JPY – The selling pressure on sterling that turned into an overnight flash-crash has completed smashed the near term range. The market is now trying to recover and unwind. The old support at 130.00 is now resistance.
- USD/SEK – There is a mild bullish bias has turned into a bullish breakout above 8.6290 and the bulls are now running higher. Near term momentum is strong and the old resistance will now turn into support for dips at 8.6290. The bulls will be eying 8.6980.
- US30 (Dow Jones Industrial Average) – The choppy range play continues but it is tightening now and there is now resistance at 18,315. The outlook is increasingly neutral despite the intraday volatility. Play the range above the range at 18,115..
- Silver – The bars are in control as another downside break is testing the next support at $17.07. The momentum in the sell-off is significantly bearish and rallies intraday are being sold into. A breach of $17.07 opens $16.20/$16.55. Payrolls is likely to create a lot of volatility too.
- Coffee (KCc1) – The market has rolled over again as the near term corrective move continues. Leaving another lower high at 151.15 heaped pressure on the support at 147.00 which has now been breached. This now builds for a much deeper correction with initial support at 146.35 unlikely to hold up a retreat towards 140 and possibly 135. Intraday rallies are a chance to sell, with 148.85 resistance.
Moving into Non-farm Payrolls the dollar strength has dragged the pair lower within the consolidation and the concern is that yesterday’s bear candle has continued lower today as the market appears to be taking a view of continued dollar strength despite the imminent payrolls report this afternoon. Today’s dip has even now fallen below the key near term support at $1.1120. The market is now testing the confluence of the old long term pivot at $1.1100 and the bull trend that has been in place since December. It would be a surprise though if the market took a significant view ahead of payrolls and started to break lower, however momentum is now gaining downside traction on RSI below 40 and Stochastics. Until the market closes below $1.1120 a continuation of the near term range cannot be ruled out. Initial resistance then is at $1.1200 and then at $1.1250.
Sterling has broken down further into new 31 year lows and overnight in thin Asian trading we have seen a flash-crash down to $1.1819 on my Reuters chart. The market has instantly unwound the move and as yet it is unclear of the cause but sterling remains weak. The market is now looking to unwind some of the losses as the European traders begin to take over, however, once the dust settles, Cable remains a technically very weak chart with further downside potential. It is clearly a volatile trade though and the bounce could unwind back to the breakdown level around $1.2600 perhaps (although this is still some way off). Non-farm Payrolls adds an extra layer of volatility this afternoon. A bumpy ride continues.
USD/JPY
The run higher on Dollar/Yen has been strong and consistent, pulling the market through the resistance at 103.35 which on the hourly chart has now become supportive. An eighth straight bullish candle shows this consistency with a high so far of 104.15. A test of the September high at 104.30 remains likely with momentum indicators strongly configured. The overnight consolidation is understandable given the proximity of Non-farm Payrolls and although the support of the rising 21 hour moving average has been breached which reflects a loss of impetus I still expect this to be a pause for breath. The support at 103.35 is holding but could now form a small top pattern that would imply 102.55 if broken decisively. I would though still see this as a buying opportunity as the outlook has changed and is now increasingly dollar positive (unless Payrolls drastically disappoint today).
Gold
The market continues to fall away as another support has been broken. The band of support between $1251/$1260 has only seemingly made a passing impression as gold dropped below yesterday. The momentum indicators look increasingly negative and there is little technical reason now not to believe that there will be a continued retracement back towards $1200. Perhaps only the fact the closing price yesterday just held on to the $1251 support is a cause for relief but it is likely to be short lived and gold looks to be creaking again. Resistance is only really on an intraday basis now with $1259, $1270 and $1277. The hourly chart shows that any moves to unwind the hourly RSI back towards 40/50 is getting sold. Payrolls will drive volatility and with gold a “safe haven” trade counter to the surprise (i.e. a positive surprise on the report is negative for gold).
WTI Oil
The propensity for the bulls to buy into intraday weakness continues to mean that WTI has posted a series of strong bull candles for the past seven sessions. Yet another strong close to strong session means that WTI is now clear of the psychological $50.00 level but also looks to be ready to breakout above the mid-June high at $50.55. The way that the bulls are running now, it should only be a matter of time for the next upside break of resistance. A break above $50.55 opens the $51.67 key June 2016 rally high. The RSI is increasingly strong above 60, whilst the MACD lines and Stochastics are also positively configured. The hourly chart shows a very well defined uptrend is being held for the past six days, whilst the rising 55 hour moving average is flanking the move higher and is supportive. The hourly momentum indicators are also strongly configured and show that in this trending move, the buyers continue to return at around 45/50 on the hourly RSI, whilst the hourly MACD is also strong but that intraday corrections should be bought into. Initial price support is at $49.10/$49.35.
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