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Preview for August US NFPs and Trade Setups in USD-pairs

Talking Points:

- 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 +95.7K since 2011.)

A print below +180K 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.

See the above video for technical considerations in EURUSD, EURGBP, AUDUSD, USDCAD, and the USDOLLAR Index.

Read more: EUR-, USD-pairs Anxiously Await ECB Today, US NFPs Tomorrow

— Written by Christopher Vecchio, Currency Strategist

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

To be added to Christopher’s e-mail distribution list, please fill out this form

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Oil, Copper Pares ECB-Induced Gains, Gold Weak into Non-farm Payrolls

Talking Points:

  • Rally due to European Central Bank’s QE expansion quickly subsided before Non-farm Payrolls
  • Oil sensitive to macro, awaits employment data and subsequent USD moves
  • Copper bearish coming up to US data
  • Gold saw progressive outflows, expects volatility with USD swings

The European Central Bank monetary meeting yesterday eluded to increase the size, composition, and duration of its quantitative easing program. This led to an instantaneous rally in equities and commodities, although momentum quickly subsided and position-covering took over ahead of Non-farm Payrolls data and a long US weekend.

The Federal Reserve will factor this employment data into the timing of rate lift-off when they meet on September 16-17. A good number would affirm sustainable economic growth therefore support an early rate rise and boost the US dollar, leading to a drop in commodity prices.

Copper and aluminum pared the ECB-induced gains, after copper closed at the highest since August 10. The metal has lost the most among major commodities so far amid talks of profit taking before a US long weekend and China coming back from holidays next week. There is little fundamental upside prospect for copper at present as it is strongly attached to a slowing Chinese economy, hence prices may react more negatively to any US dollar rally than other commodities.

In recent days, oil has proven to be extremely sensitive to macro events. It joined equities to test the upside after ECB’s President Draghi struck a dovish tone yet quickly cooled down to sideways moves in Asia’s trade. This completely mirrored the crash-to-rebound on September 2 upon a multi-year low China manufacturing gauge.

Therefore oil prices will take cues from the market’s interpretation of Non-farm Payrolls today and swing in reverse to subsequent USD moves. A weekly oil rig count by Baker Hughes also contributes to volatility ahead.

Gold stayed flat during Asian session and interests had waned daily ahead of employment data, despite lowered expectations for an early US rate rise. Chances for a September increase had progressively reduced in the past three weeks since China devalued its currency and given recurring equity rout. Hence Non-farm Payrolls data is thought to drive the US dollar more than a shift in Fed’s decision; as such ensuing gold volatility may be lesser than previously expected.

GOLD TECHNICAL ANALYSIS – Gold dropped below 38.2% Fibo and currently lingers on the lower end of yesterday price band with low volatility. Momentum signals clearly indicate further declines with a firm support level at 23.6% Fibo at 1109.3. Chances for gold prices to climb back above 1132 are slim except for a severe rally. The gold bears may place short-term trades ahead.

Oil, Copper Pares ECB-Induced Gains, Gold Weak into Non-farm Payrolls

Daily Chart – Created Using FXCM Marketscope

COPPER TECHNICAL ANALYSIS – Copper is stuck in a lackluster period with unclear momentum signals. Support level is found at 2.2080 whereas yesterday’s high at 2.4170 offers a resistance level. Range traders may take advantage of this region in the absence of directional moves.

Oil, Copper Pares ECB-Induced Gains, Gold Weak into Non-farm Payrolls

Daily Chart – Created Using FXCM Marketscope

CRUDE OIL TECHNICAL ANALYSIS WTI oil is capped at a recent peak of 49.30 before US data offer more clues on Fed’s rate assessment and consequently move the USD. As highlighted in past reports, momentum signals hinted at downward pressure on oil prices and if the dollar rally oil may see a drastic descent from current support level at 5-day moving average to touch the 20-day moving average at 42.86 below it.

Oil, Copper Pares ECB-Induced Gains, Gold Weak into Non-farm Payrolls

Daily Chart – Created Using FXCM Marketscope

— Written by Nathalie Huynh, Currency Strategist for DailyFX.com

Contact and follow Nathalie on Twitter: @nathuynh

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US Dollar, Yen May Rise as Commodity Currencies Fall on US Jobs Data

Talking Points:

  • US Dollar, Yen May Rise as Payrolls Data Fuels Fed Rate Hike Speculation
  • Australian, Canadian and NZ Dollars Drop as Risk Aversion Returns in Asia
  • See Economic Releases Directly on Your Charts with the DailyFX News App

Risk aversion returned in Asian trade, sinking the sentiment-linked Australian, Canadian and New Zealand Dollars while boosting the safety-geared Japanese Yen. The Euro put in a mixed performance, rising against overtly risk-anchored currencies but underperforming other anti-risk alternatives. The single currency’s ability to capitalize on carry trade liquidation was probably complicated by lingering negativity after the ECB opened the door for monetary stimulus expansion at yesterday’s policy meeting.

The erosion in market confidence likely reflects pre-positioning ahead of the much-anticipated release of Augusts’ US Employment figures. Nonfarm payrolls are expected to rise 217,000 to mark a narrow improvement over the prior month’s 215,000 increase. Traders will look to the report to gauge the likelihood of a September FOMC interest rate hike. Indeed, Fed Vice Chairman Stanley Fischer specifically fingered the data set as important in the decision process at the weekend’s Jackson Hole Symposium.

US economic news-flow has stabilized compared to consensus forecasts since late July, suggesting economists’ models may have become relatively well-tuned to realized outcomes. That hints a print close to in line with expectations is likely, which would broadly put employment growth on at the prevailing medium-term trend.

Such an outcome would suggest the real economy has remained resilient to recent financial market volatility (at least thus far), pouring cold water on hopes that the Fed will hold off on stimulus withdrawal. This bodes well for the US Dollar but seems likewise likely to trigger a risk-averse response from investors, with funding currencies standing to gain while higher yielders continue to suffer.

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— Written by Ilya Spivak, Currency Strategist for DailyFX.com

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Contact and follow Ilya on Twitter: @IlyaSpivak

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Euro Tumbles on European Central Bank Commentary, Risks to Downside

- Euro tumbles following disappointing European Central Bank commentary

- Short-term forecasts now favor further Euro weakness

- Follow real-time news update via the Forex Real Time News page

The Euro fell sharply as European Central Bank President Mario Draghi announced lower growth and inflation forecasts. The sharp sell-off warns further losses are likely.

Traders kept a close eye on planned commentary from the ECB’s Draghi as he issued prepared statements from the central bank’s policy meeting, and the decidedly dovish tone in his commentary sent the Euro sharply lower across the board.

Indeed the EUR/USD exchange rate quickly hit its lowest levels in several weeks as official forecasts for both Gross Domestic Product growth and Consumer Price Index inflation saw notable downgrades.

Euro Tumbles following European Central Bank Commentary

Euro Tumbles on European Central Bank Commentary, Risks to Downside

Source: DailyFX Powered by TradingView, Prepared by David Rodriguez

Draghi went on to say that the ECB will use “all tools within mandate if needed” as growth risks remain to the downside. And further commentary on the importance of the Euro exchange rate, contagion risks from recent Emerging Market-led financial volatility, and downward pressure on prices underlined that the bank remains on relatively high alert.

It is safe to say that further European Central Bank policy easing is not imminent, but Draghi likewise made it clear that officials stand ready to react if growth and inflation trends do indeed take a sharp turn for the worse.

Our volume-based studies suggest that a Euro break below $1.12 leaves it vulnerable to a return towards $1.10, and risks remain to the downside following this ECB disappointment.

Written by David Rodriguez, Senior Strategist

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September Forex Seasonality Sees Chance for Big Moves in USD-pairs

Talking Points:

- September has produced some of the largest monthly ranges for USD-pairs.

- EURUSD and GBPUSD have alternated between gains and losses the past four years.

- September marks the first of four consecutive months of gains for the S&P 500.

See the full rundown of seasonal patterns broken down by currency pairs below, and to receive reports from this analyst, sign up for Christopher’s distribution list.

The beginning of the month warrants a review of the seasonal patterns that have influenced forex markets over the past several years. In our previous study, we decided to once again focus only on recent performance during the QE era of central bank policies (2009-present).

For September, we continue to focus on the period of 2009 to 2014. The small sample size is not ideal, and we recognize that there is increased statistical stability with using longer time periods. However, because of the specific uniqueness of the past six years relative to any other time period in market history – the era of quantitative easing – we’ve elected to attempt to increase the stability of the estimates with the shorter time period.

September Forex Seasonality Sees Chance for Big Moves in USD-pairs

Forex Seasonality in Euro (via EURUSD)

September Forex Seasonality Sees Chance for Big Moves in USD-pairs

Seasonality tends to favor a slightly stronger Euro in September. Historically, trading ranges in September have been approximately three times the size they were in August. Given recent developments in financial markets (particularly concerns over China), the seasonal tendency for greater volatility at the end of Q3 looks like it should be the baseline expectation.

Forex Seasonality in British Pound (via GBPUSD)

September Forex Seasonality Sees Chance for Big Moves in USD-pairs

Seasonality tends to favor a barely changedBritish Pound in September. Historically, volatility has doubled August’s range. Over the past six years, gains and losses have been split equally, although last year’s loss in September was the first since 2011. The seasonal outlook is neutral GBPUSD.

Forex Seasonality in Japanese Yen (via USDJPY)

September Forex Seasonality Sees Chance for Big Moves in USD-pairs

Our seasonal forecast for USDJPY in September is neutral. The average performance calls for higher prices, although the September performance is skewed higher by an outsized gain seen in 2014. From 2010 to 2013, USDJPY gained or loss no more than one big figure. There are opposing forces at work right now in USDJPY, with bulls clinging to hope of a Fed rate hike in September, while bears are honed in on recent weakness in global equity markets.

Forex Seasonality in Australian Dollar (via AUDUSD)

September Forex Seasonality Sees Chance for Big Moves in USD-pairs

September has produced the largest ranges in AUDUSD during the QE era, with only May – the most bearish month of the year – challenging September’s historical price range. There’s been little consistency in terms of performance year to year, and given the wide price range carved out in September, a neutral outlook is appropriate for AUDUSD.

Forex Seasonality in USDOLLAR

September Forex Seasonality Sees Chance for Big Moves in USD-pairs

September has been a negative month (but only by a slim margin) for the USDOLLAR Index (an aggregate of EURUSD, GBPUSD, AUDUSD, and USDJPY) during the QE era. After two consecutive losses in 2012 and 2013, September 2014 posted the first rally since 2011. Given the breakdown of the individual components of the index, we’d expect more neutral trading relative to August 2014 to develop this year; losses have developed in four of the poast six years.

Forex Seasonality in New Zealand Dollar (via NZDUSD)

September Forex Seasonality Sees Chance for Big Moves in USD-pairs

With small gains coming in four of the last six years, and larger losses developing in the remaining two, the average performance for NZDUSD has been neutralized in September. Like many of the other USD-pairs, NZDUSD has seen its largest range of the year carved out in September. Concurrent with our AUDSUD forecast, the seasonal forecast for NZDUSD is neutral.

Forex Seasonality in Canadian Dollar (via USDCAD)

September Forex Seasonality Sees Chance for Big Moves in USD-pairs

September hasn’t produced much consistency for the Canadian Dollar during the QE era, with losses coming in only two of the past six years, with gains by USDCAD coming in 2011 and 2014. Overall, September has been the second most volatile month of the year as measured by the range of closing prices, trailing only May (which has proven to be one of the more volatile months of the year for most USD-pairs). Our seasonal outlook for USDCAD is neutral.

Forex Seasonality in Swiss Franc (via USDCHF)

September Forex Seasonality Sees Chance for Big Moves in USD-pairs

Like the other USD-pairs, USDCHF has typically seen one of its largest monthy ranges range during September over the past six years. Although losses have materialized in four of the past six years, the average performance has been slightly positve during the QE era thanks to an outsized gain in 2011. Taking into account our EURUSD forecast, a more neutral forecast may be deemed appropriate for USDCHF.

Forex Seasonality in S&P 500

September Forex Seasonality Sees Chance for Big Moves in USD-pairs

‘Sell in May and go away?’ That’s what we typically hear at the start of the summer months, as investors have picked up on the trend of US equity markets stalling mid-year. This year has been no different: the S&P 500 ended April at 2108, and started September at 1968. If mid-year is truly the bearish stretch of the year, then we may see a bit more sideways or downside price action proliferate the next few weeks; our seasonal forecast is neutral on the S&P500 at the beginning of the month, and increasingly bullish as the calendar nears Q4 – the most bullish quarter of the year during the QE era.

Forex Seasonality in Gold

September Forex Seasonality Sees Chance for Big Moves in USD-pairs

The Gold-USD relationship the past few years has been fairly straightforward: as the US Dollar has strengthened since its 2011 lows, Gold has weakened dramatically from its 2011 highs. September has produced the worst single month (nominally) of the year at any point over the last six years, with September 2011 seeing Gold lose in excess of $200. With three losses over the past four years, our seasonal forecast for Gold is slightly bearish.

Read more: AUD/USD Down Under $0.7000 as HY, EM FX Pressure Remains

— Written by Christopher Vecchio, Currency Strategist

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

To be added to Christopher’s e-mail distribution list, please fill out this form

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EUR-, USD-pairs Anxiously Await ECB Today, US NFPs Tomorrow

Talking Points:

- EURUSD trades near rising TL from August lows ahead of ECB.

- AUDUSD, USDCAD consolidate amid trending markets.

- See the September forex seasonality report.

The end of the first week of the month is usually exciting, with a central bank decision or two complemented by the monthly US labor market report, bookending several days of important economic data from around the globe. Yet the excitement and hooplah surrounding the European Central Bank meeting today and the August US Nonfarm Payrolls report tomorrow seem to be lacking something…

…and that something may be active participation in markets. Such is typical for this time of year, particularly in Europe where much of the business world summers along the French Riviera or the Amalfi Coast through the end of August. With markets around the globe closed for various reasons over the next few days (China celebrating the 70 anniversary of the end of WWII; Labor Day in the United States; and Labour Day in Canada), traders may be hesitant to deploy normal positions before ‘true’ liquidity comes back online.

As such, it’s unlikely that today’s ECB meeting provokes too great of an incentive for traders to come into the market, knowing well that the US NFP report tomorrow could easily wipe out positions taken today. The market should have the next two days digested by the start of ‘normal’ trading next week when full participation (or at least the beginning stages of returning to it) arrives.

What we’re looking for today from the ECB will be along the forward guidance front rather than actual policy action. In the interim period since the last meeting that provided updates to the central bank’s growth and inflation forecasts: the Euro has strengthened against a basket of its major counterparts; and energy prices have resumed their slide. These factors culminate in any environment that could see the ECB reduce its inflation forecasts for 2015 and beyond, offering a dovish blush to an otherwise neutral policy meeting. Accordingly, we’ll be looking for ECB President Mario Draghi to reaffirm the central bank’s promise to keep its QE program in place through at least September 2016.

See the above video for technical considerations in EURUSD, EURGBP, AUDUSD, USDCAD, and the USDOLLAR Index.

Read more: AUD/USD Down Under $0.7000 as HY, EM FX Pressure Remains

— Written by Christopher Vecchio, Currency Strategist

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

To be added to Christopher’s e-mail distribution list, please fill out this form