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  • IG Client Sentiment Update: Our data shows the vast majority of traders in Silver are long at 93.14%, while traders in EUR/USD are at opposite extremes with 69.34%. See the summary chart below and full details and charts on DailyFX: https://www.dailyfx.com/sentiment https://t.co/QCLjR5fkOu
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  • $EURUSD is currently setting fresh intraday highs above the 1.2080 level, edging above the highs set earlier in the week to hit its highest level since early March. $EUR $USD https://t.co/wcARbp81Et
  • EUR/USD appears to be stuck in a narrow range as the European Central Bank (ECB) retains the current course for monetary policy. Get your $EURUSD market update from @DavidJSong here:https://t.co/UdgBEQ3MCi https://t.co/uwkNwc1Ikm
  • US Indices are stronger today, recovering from yesterday's selloff driven by capital gains tax headlines. DOW +0.68% SPX +1.17% NDX +1.53% RUT +1.49% $DIA $SPY $QQQ $IWM
  • IG Client Sentiment Update: Our data shows the vast majority of traders in Silver are long at 93.02%, while traders in US 500 are at opposite extremes with 68.36%. See the summary chart below and full details and charts on DailyFX: https://www.dailyfx.com/sentiment https://t.co/8OCSgtJeBx
  • there's a bullish channel in here the spans back to last year's q4 $EURJPY support side was tested this morning but bulls making a strong push back-above the 130 handle https://t.co/gHQtawE3BH https://t.co/3XU9kb72f5
  • $EURJPY has mostly been consolidating between the 129.50 and 130.50 levels in April, trading around its highest point since the fall of 2018. The pair hit a fresh multi year high just shy of the 131.00 level earlier this week. $EUR $JPY https://t.co/M9gO4rcOZh
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  • Forex Update: As of 16:00, these are your best and worst performers based on the London trading schedule: 🇪🇺EUR: 0.46% 🇦🇺AUD: 0.35% 🇨🇭CHF: 0.21% 🇬🇧GBP: 0.07% 🇨🇦CAD: 0.06% 🇯🇵JPY: 0.03% View the performance of all markets via https://www.dailyfx.com/forex-rates#currencies https://t.co/ngF6ZwsVQk
Will NFPs Sustain S&P 500 Rally, Force EURUSD Breakout? (Infographic)

Will NFPs Sustain S&P 500 Rally, Force EURUSD Breakout? (Infographic)

John Kicklighter, Chief Strategist

This week has proven a productive one so far for traders. With the return of Western traders from Summer break and heavy event risk dotting the economic calendar, volatility has clearly picked up and direction is slowly starting to peak through. That said, our first attempt at jump starting the long-awaited return to ‘risk trends’ was somewhat uneven. The ECB rate decision forced a bullish break to four year highs on the S&P 500, but the EURUSD failed to break the boundaries of its recent congestion (see charts below).

Will_NFPs_Sustain_SP_500_Rally_Force_EURUSD_Breakout_Infographic_body_Picture_5.png, Will NFPs Sustain S&P 500 Rally, Force EURUSD Breakout? (Infographic)Will_NFPs_Sustain_SP_500_Rally_Force_EURUSD_Breakout_Infographic_body_Picture_6.png, Will NFPs Sustain S&P 500 Rally, Force EURUSD Breakout? (Infographic)

Past NFP Reaction

Now, we are heading into the second phase of this week’s one-two fundamental punch with US nonfarm payrolls (NFPs) for August. This particular indicator certainly captures the attention of the media – but can it unify on the same fundamental path once again? Looking at the EURUSD’s reaction to the previous releases this year, there isn’t much in the way of trend generation found in the aftermath. But there have been a few instances of notable volatility that could offer us enough of a push to force 1.2650.

Will_NFPs_Sustain_SP_500_Rally_Force_EURUSD_Breakout_Infographic_body_Picture_7.png, Will NFPs Sustain S&P 500 Rally, Force EURUSD Breakout? (Infographic)

The Big Picture of US Employment

Will_NFPs_Sustain_SP_500_Rally_Force_EURUSD_Breakout_Infographic_body_Picture_8.png, Will NFPs Sustain S&P 500 Rally, Force EURUSD Breakout? (Infographic)

As we can see above, the ADP generally stands in as a simplistic benchmark for the NFPs release. The August reading was only one of seven months that private payrolls topped 200,000. That said, the ADP figures are often adjusted after the BLS release to better fit.

Will_NFPs_Sustain_SP_500_Rally_Force_EURUSD_Breakout_Infographic_body_Picture_9.png, Will NFPs Sustain S&P 500 Rally, Force EURUSD Breakout? (Infographic)

This is the chart that politicians, central bankers and long-term investors will contemplate. Where are we in the recovery from the worst financial and economic crisis in generations? Monthly increases may be hearty, but total US employment still has a long way to catch up. Is this reason for more stimulus?

Will_NFPs_Sustain_SP_500_Rally_Force_EURUSD_Breakout_Infographic_body_Picture_10.png, Will NFPs Sustain S&P 500 Rally, Force EURUSD Breakout? (Infographic)

Another deceptive measure of labor market health is the weekly jobless claims data that we follow. Thanks partially to the roll off of extended benefits for claims, we have seen a sharp drop in filings for unemployment benefits. That said, even the drop in labor participation can’t hide the jobless rate statistics.

Sector Employment Readings

Will_NFPs_Sustain_SP_500_Rally_Force_EURUSD_Breakout_Infographic_body_Picture_11.png, Will NFPs Sustain S&P 500 Rally, Force EURUSD Breakout? (Infographic)

What the Fed Sees

And of course, we can’t look at the employment statistics without appreciating what real-world impact they carry. The market is so heavily invested in the event risk not because it is showing a rapid recovery for the world’s largest economy – but rather because it offer guidance to the next potential round of stimulus from the Federal Reserve. Will this data support QE3?

Will_NFPs_Sustain_SP_500_Rally_Force_EURUSD_Breakout_Infographic_body_Picture_12.png, Will NFPs Sustain S&P 500 Rally, Force EURUSD Breakout? (Infographic)Will_NFPs_Sustain_SP_500_Rally_Force_EURUSD_Breakout_Infographic_body_Picture_13.png, Will NFPs Sustain S&P 500 Rally, Force EURUSD Breakout? (Infographic)

DailyFX Event Risk Trading Strategy:

- How should we approach and trade the NFPs given the heavy impact and fast market reaction? Read David Song’s Trading the News Article on the NFPs.

DailyFX Video of Market Backdrop and Likely Trends Through Next Week:

- Learn more of the market backdrop heading into the NFPs and why this particular piece of event risk is good for volatility but less capable of defining our next, major trend.

--- Written by: John Kicklighter, Chief Strategist for DailyFX.com

To contact John, email jkicklighter@dailyfx.com. Follow me on twitter at http://www.twitter.com/JohnKicklighter

To be added to John’s email distribution list, send an email with the subject line “Distribution List” to jkicklighter@dailyfx.com.

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