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Forex Markets Cautious Ahead Of Key Non-farm Payrolls

Published 03/06/2016, 08:39
Updated 09/03/2019, 13:30
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Market Overview

It is Non-farm Payrolls day today and, as ever, there is an air of caution to the outlook on forex markets with the potential for this to be a crucial announcement. The markets will tend to consolidate in front of the announcement with subsequent volatility after. There is though the added complication of the services PMIs for the European session to deal with this morning, but barring any significant surprise, it is payrolls that the market will be focused on. The outperformance of the dollar has been called into question in the past few days as the strength has started to dissipate. However it is likely that with the Fed seemingly now being so data dependent, that this could be the precursor to an outlook defining move, with payrolls the catalyst. Could the data in the Employment Situation report today make or break the potential for a June hike? The market is still not expecting a June hike but a strong headline payrolls with further progress on earnings growth and labor force participation, there could be a significant re-pricing again.

Wall Street squeezed out some marginal gains yesterday with the S&P 500 +0.3%, with Asian markets also slightly higher with the Nikkei +0.5% despite the stronger yen and a dip in the Caixin China services PMI. European equities have also opened with mild gains. Forex markets are very mixed with little real direction, although with the mildly positive outlook in the Asian session, the Aussie and kiwi are performing well. Gold and silver are flat to slightly positive, whilst the oil price continues to hold its ground after yesterday’s late recovery.

Traders will be looking out for the final services PMIs for the Eurozone at 0900BST which are expected to show 52.9, with the UK Services PMI at 0930BST expected to improve slightly to 52.5 (from 52.3). The main focus though will be on the Employment Situation report which is announced at 1330BST, with the headline Non-farm Payrolls expected to show 164,000 jobs (up from 160,000 last month). The average hourly earnings are also increasingly important and are expected to be +0.2% for the month which would be +2.5% for the year. The unemployment rate is expected to dip to 4.9% (from 5.0%) whilst also watch to see if the labor force participation rate can pick up from 62.8. There is also the ISM Non-Manufacturing to consider at 1500BST which is expected to dip back to 55.5 (from 55.7) and the Factory Orders also at 1500BST which are expected to show a 1.9% gain on the month.

Chart of the Day – USD/CAD

Questions over the sustainability of the dollar rally continue, but could dollar/loonie be a signal chart for the dollar generally? The rally in the past few weeks has been considerable from the low around 1.2460, however seemed to have hit the buffers last week as a high was posted at 1.3188. The sustainability of the rally has been open to debate in the time since that high, but what could now emerge is larger head and shoulders base pattern. This pattern would now complete above 1.3217 and would also be a continuation of the rally from the earlier base pattern that completed above 1.3015. A confirmed move above 1.3217 would imply a much bigger recovery target of 1.3970. For now the market is in a consolidation drift mode, but the momentum indicators are far more positively configured now with the RSI consistently holding above 50 and the Stochastics in a similar configuration. It increasingly seems as though the key support of the late May low at 1.2905 (which is also the possible right hand shoulder of the prospective bigger base pattern) is important. The hourly chart shows little real gain throughout this week but there is still a mildly positive drift higher. Initial support is at 1.3040 with 1.3012 a more important flor (also the neckline of the previous base pattern). Holding above here and the recovery is still on. Could it be that this is consolidation before a larger recovery for the dollar?

USD/CAD Daily Chart

EUR/USD

The euro lost its upward momentum for the potential recovery yesterday as traders took a marginally negative view of the ECB press conference. The resistance in place around $1.1215 was breached by a few pips but this barrier clearly remains in place. This means that the key long term pivot at $1.1100 is still the big support to take note of, whilst the resistance around $1.1215 is also growing. The momentum indicators are still trying to recover with the Stochastics now crossing above 20 (seemingly a buy signal) and the RSI back above 40. The hourly chart shows that this is a consolidation period with the moving averages all having converged to flatten off, with the price looking to form support around $1.1140 this morning. It is payrolls today and perhaps this will provide the market with some direction. Strong payrolls would put pressure on $1.1100 and possibly the bottom of the 50 pip band at $1.1050 and could be an outlook defining move.

EUR/USD Daily Chart

GBP/USD

The near term slide on cable is looking to settle around $1.4400 with a very neutral candle formation yesterday likely to continue at least for the first half of today’s session. It is Non-farm Payrolls today and the market tends to consolidate moving into the data. However there is now a slight bearish bias within what has become an increasingly choppy medium term range. Having broken the support of the 8 week uptrend the bulls lost control. However with the RSI dropping (albeit only marginally) to an 8 week low also, whilst the Stochastics continue to slide, the potential for a test of the key medium term support at $1.4330 is high. The slight bearish bias is reflected in the hourly momentum indicators which are now more negatively configured, with all moving averages in decline and there is now resistance at $1.4470 and $1.4505. Clearly the payrolls report will drive the near term outlook today, but in front of the announcement the bulls are under pressure. A breach of $1.4330 would mean there is little real support until the key March/April lows around $1.4000/$1.4050. Further resistance is at $1.4565/$1.4600.

GBP/USD Daily Chart

USD/JPY

With now three consecutive bearish candles, the negative outlook continues to develop. The supports within the previous recovery uptrend are being knocked off and the momentum indicators are increasingly negative. The daily chart shows that the RSI has dropped to a 3 week low, whilst the Stochastics continue to accelerate lower. The hourly chart shows support at 108.70 was breached yesterday and this now opens 108.20 which is the last real support within the uptrend until you have to start looking at the big May lows once again between 105.50/106.45. With the consolidation in front of the payrolls report today the selling pressure may have dissipated slightly for now but hourly indicators suggest that this is just bearish momentum unwinding and that rallies continue to be sold into. Resistance levels come in at 109.30 which was yesterday’s low and 109.70.

USD/JPY Daily Chart

Gold

Despite the support building at $1199.60 I have been worried by the lack of progress in a recovery on gold and there has now been another negative close that means that gold has now been in decline for 11 of the past 12 sessions. The recent couple of days have been very muted trading through and there is still the potential that this support around $1200 could hold. However, momentum indicators do not reflect any significant buying impetus with the RSI and Stochastics still negatively configured. The hourly chart merely reflects a near term consolidation but with the resistance mounting around $1220 the overhead supply up to $1233 is prohibitive to a rally. Gold will tend to be reactive to the Payrolls report so expect increased volatility this afternoon. Below $1200 the support is at $1190.40.

Gold Hourly Chart

WTI Oil

Although the likelihood of an agreement overproduction limits coming out of the OPEC meeting was never really expected, the disappointment still hit the oil price yesterday. However the drawdown in the EIA oil inventories helped to support the market and the subsequent rebound has formed another neutral looking candle. This now shows that the market seems to be in consolidation mode as the corrective move just cannot hold the traction. The corrective drift lower from $50.20 has continued however there is still nothing yet on the charts that suggest the medium term bulls should be worried about the recovery trend failing. The uptrend has now moved through $46.00 and is increasingly converging with the $46.75 key support. However, the momentum indicators reflect the continued support that the market is gaining as even intraday corrections are being bought into. The hourly chart shows support in the range $47.40/$47.75 is growing. Resistance now stands with the $49.47 high from yesterday which protects $50.20.

WTI Daily Chart

DISCLAIMER: This report does not constitute personal investment advice, nor does it take into account the individual financial circumstances or objectives of the clients who receive it. All information and research produced by Hantec Markets is intended to be general in nature; it does not constitute a recommendation or offer for the purchase or sale of any financial instrument, nor should it be construed as such.

All of the views or suggestions within this report are those solely and exclusively of the author, and accurately reflect his personal views about any and all of the subject instruments and are presented to the best of the author’s knowledge. Any person relying on this report to undertake trading does so entirely at his/her own risk and Hantec Markets does not accept any liability.

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