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US Dollar Price Volatility Report: NFP Jobs Report & Fed Eyed

US Dollar Price Volatility Report: NFP Jobs Report & Fed Eyed

Rich Dvorak, Analyst

US DOLLAR CURRENCY VOLATILITY HEIGHTENED AHEAD OF NFP JOBS REPORT

  • USD price action continues to drift lower as a series of particularly disappointing datapoints on the US economy fuel Fed rate cut bets
  • The US Dollar is teed up for heightened volatility tomorrow with the release of September nonfarm payrolls (NFP) jobs report on deck
  • Check out this information on NFP and Forex Trading

The US Dollar came under renewed selling pressure during Thursday’s trading session. USD price action received its latest jolt from this morning’s ISM Non-Manufacturing PMI report, which detailed a spooky drop in America’s services industry that comprises roughly 70% of US GDP and sent Fed rate cut bets surging.

Downside in the US Dollar was halted when the DXY Index kissed its 20-DMA (a key technical level I have been highlighting regularly in my daily US Dollar price volatility reports) and helped facilitate a larger rebound in the greenback, though the world’s reserve currency still finished the day slightly lower.

US DOLLAR INDEX PRICE CHART: DAILY TIME FRAME (APRIL 10, 2019 TO OCTOBER 03, 2019)

US Dollar Price Chart Technical Analysis

Chart created by @RichDvorakFX with TradingView

As mentioned previously, US Dollar downside over the last few days has been driven chiefly by a surge in Fed rate cut expectations. In fact, themarket priced probability of a third consecutive FOMC rate cut at the central bank’s next meeting later this month has skyrocketed a 40% chance on Monday to over 90% four days later.

FED INTEREST RATE CUT EXPECTATIONS BACK ON THE RISE & DRAGGING DOWN US DOLLAR

Fed Rate Cut Expectations Chart

Looking further out, overnight swaps imply a 56% probability that the target Fed funds rate (FFR) will be between 1.00-1.25% or lower after the March 2020 FOMC rate decision, which is up significantly from the 17% probability priced by rate traders earlier this week. That said, the US Dollar will face intimidating headwinds if a disappointing September NFP report continues to accelerate Fed rate cut bets whereas a better-than-expected print on the US jobs market stands to send the greenback rebounding back toward year-to-date highs.

NONFARM PAYROLLS – US JOBS REPORT HISTORICAL MONTHLY CHANGE

Nonfarm Payrolls NFP Historical Monthly Data Chart

According to the Bloomberg median economist estimate, the September US jobs report should reveal the monthly change in employment rising by 145K jobs. This compares to the Atlanta Fed jobs calculator, which indicates that the US labor market needs to average around 108K additions over the next 12 months to keep the unemployment rate steady at 3.7%.

The 3-month average change in nonfarm payrolls currently sits at 156K. On another note, the US jobs market could be showing signs of slowing as suggested by the recent trend lower so far this year. Also, the labor index components on the ISM manufacturing and services PMI reports released this week both decreased substantially in September.

US DOLLAR IMPLIED VOLATILITY & TRADING RANGES (OVERNIGHT)

US Dollar Implied Volatility Trading Ranges Table Ahead of September NFP Jobs Report

US Dollar implied volatility keeps churning higher, which I anticipated would happen in last Friday’s US Dollar price volatility report, in consideration of this week’s high-impact economic data releases and elevated trade war risk. Also, I previously detailed in my article EUR/USD: Expect US NFP Jobs Data to Spark Forex Volatility that EURUSD fluctuates +/- 36 pips on average in response to the release of monthly US nonfarm payrolls employment data.

This is slightly below the estimated move of +/- 41 pips tomorrow derived from the latest overnight implied volatility pricing. USDJPY and USDCHF – two particularly interest rate sensitive currency pairs – in addition to GBPUSD amid ongoing Brexit drama are expected to be the most volatile major USD crosses. I recently noted that my USDJPY price outlook is bearish with the prospect of more FOMC rate cuts on the horizon.

US DOLLAR RISK REVERSALS (OVERNIGHT)

US Dollar Risk Reversal Ahead of September US Jobs Report

Generally speaking, forex option traders have a bearish bias on the US Dollar headed into Friday’s session. This is indicated by overnight US Dollar skew measures (i.e. risk reversals). A risk reversal reading above zero indicates that the demand for call option volatility (upside protection) exceeds that of put option volatility (downside protection). The IG Client Sentiment Report, which details client positioning across a variety of currencies and assets, is updated in real-time and also provides insight on the bullish or bearish biases of traders.

-- Written by Rich Dvorak, Junior Analyst for DailyFX.com

Connect with @RichDvorakFX on Twitter for real-time market insight

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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