Preview for August US NFPs and Trade Setups in USD-pairs
- EURUSD holds below trendline from August lows after ECB.
- USDJPY likely to see choppy trading conditions either way.
- See the September forex seasonality report.
The USDOLLAR Index is testing its highest levels since early-August, and with the blessing of a strong August US labor market report it could be well on its way back towards its 2015 highs, ahead of the September 17 FOMC meeting. However, despite the solid forecasts (NFPs - +217K expected from +215K prior; UR - 5.2% expected from 5.3% prior) the outcomes appear to be asymmetrical.
Heading into this report, as the market debates the merits of the Fed raising rates in September, it's fairly evident that participants have become more sensitive to developments abroad - not a novel observation given what we've been seeing in US equity markets as it pertains to China. But this psychological state is telling, as it seems the bias has now shifted for the Fed not to raise rates. Thus:
- a strong August US labor market report probably boosts the chance of a rate hike from the Fed back to around 40-50% (currently 26% per the Fed Funds futures contracts)
- a weak August US labor market report probably eliminates the chance of a rate hike altogether.
For the US Dollar, this may mean that today's outcome is of the 'make or break' variety. Data recently has not been stellar along the jobs front, with weekly claims figures starting to erode and measures of employment (per the ADP Employment report, as well as both the ISM Manufacturing and ISM Service indexes' employment subcomponents) slipping back. (It is worth noting that the August jobs data is volatile, with the month producing the highest revision figure of any month of the year at +94.7K since 2011.)
A print below +180K (ceteris paribus) and the market will essentially wave goodbye to any shot of a September rate hike. EURUSD probably sees a 'cleaner' outcome than USDJPY around today's US labor market data, given the additional threat US equity market volatility has on the JPY-crosses.
--- Written by Christopher Vecchio, Currency Strategist
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