• US August non-farm payrolls +187K vs +170K expected
• US August ISM manufacturing PMI 47.6 vs 47.0 expected
• Canada Q2 GDP -0.2% vs +1.2% expected
• Baker Hughes US oil rig count unchanged this week
• Atlanta Fed GDPNow steady at 5.6% after ISM manufacturing report
• US July construction spending +0.7% vs +0.5% expected
• Fed’s Mester: Inflation still too high, but sees progress
• US August final S&P Global manufacturing PMI 47.9 vs 47.0 prelim
• Canada August S&P Global PMI 48.0 vs 49.6 prior

Markets:

• Gold flat at $1940
• US 10-year yields up 8.8 bps to 4.18%
• WTI crude oil up $2.25 to $85.88
• S&P 500 up 0.1%
• USD leads, CAD lags

The initial market reaction to the non-farm payrolls report was about what you would expect — USD selling, bonds bid — but then it got complicated. The initial moves reversed and bonds sold off, leading to a strong bid in the US dollar. The moves grew increasingly aggressive with USD/JPY slumping to 144.45 then soaring to 146.16 — nearly 180 pips.

The dollar roared elsewhere as well with EUR/USD tumbling to levels just above the August lows. That wiped out what had been a promising rally this week for the euro bulls.

Cable rose to 1.2713 on the US jobs report then dropped 1.2580 before trading sideways into the US long weekend.

The only currency with a relatively straightforward move was CAD as a poor GDP report sank the loonie initially and then USD strength did the rest. The result was a 90-pip rise in USD/CAD to 1.3600, also wiping out some decent progress that had been made earlier in the week.

The big question left to answer is: Why the sudden jump in bond yields on what was a dovish jobs report? Some pointed to modest strength in the ISM survey along with the energy price rise but that’s hardly compelling. Other talk centers around rate lock selling and I can’t help but wonder if Chinese bond sellers were looking for liquidity. There isn’t an easy answer and the long weekend along with the turn of the calendar were also cited.

The lack of a clear explanation puts the US dollar rally on a shaky foundation. We’ll have to sort it out next week — enjoy the weekend.

This article was written by Adam Button at www.forexlive.com.

Closing changes:

• S&P 500 +0.2%
• DJIA +0.3%
• Nasdaq Comp flat
• Russell 2000 +1.0%
• Toronto TSX Comp +1.2%

Weekly:

• S&P 500 +2.5%
• DJIA +1.4%
• Nasdaq Comp +3.2%
• Russell 2000 +3.6%
• Toronto TSX Comp +3.5%

There were some larger divergences with energy leading the way today behind a 2.0% rise in the XLE ETF. Banks were also strong to help pace the gain in the Russell 2000.

The weekly chart sets up a showdown with the July high but we’ll have to wait until Tuesday as North American markets are closed for a holiday.

This article was written by Adam Button at www.forexlive.com.

The September dot plot is always the most-interesting one of the year because it’s the closest thing to forward guidance that the FOMC offers.

Officials are required to place a year-end dot but there are only two meetings left so it basically says what they expect to happen in the next two meetings. Now that’s far from set-in-stone but with Sept hike odds down to 7% after the non-farm payrolls report, it will offer some intrigue at the Sept 20 decision.

Here’s what the fixed income team at BMO is looking for (note that the current rate is 5.25-5.50%):

In terms of the
looming dotplot revisions, we anticipate the 2023 funds estimate will remain
unchanged at 5.6% (implying a 5.75% upper bound) and 2024 will be nudged higher
to 4.9% (signaling 75 bp of cuts next year). These expectations are relatively
consensus at present and predicated on the August CPI report confirming this
summer’s benign inflationary backdrop.

So the thinking is that the dot plot will still signal one more hike because that will be easier for Powell to walk back later than it would be if no hike was signalled and they had to later reverse course and indicate a hike.

This article was written by Adam Button at www.forexlive.com.

Goldman Sachs maintains its recommendation for a short position in EUR/CAD with a target of 1.42 and a stop at 1.50. The rationale behind this trade is largely based on the resilience of the U.S. economy and the potential for upside in the Bank of Canada’s monetary policy.

Key Points:

• Strategic Focus: Goldman Sachs is focused on tactical, relative value opportunities that are likely to be resilient against further volatility in the U.S. dollar.

• Pair Selection: EUR/CAD is the preferred G10 currency pair for this strategy.

• Resilient U.S. Economy: The U.S. economy continues to show resilience despite various market uncertainties. This strengthens the CAD as it is closely tied to the U.S. economy due to trade relations.

• Bank of Canada’s Upside: There is scope for the Bank of Canada (BoC) to tighten its monetary policy further, which would benefit the Canadian Dollar (CAD).

• Target and Stop: The firm is targeting a move towards 1.42 in the EUR/CAD pair, with a stop at 1.50. This implies a negative view on the Euro relative to the Canadian Dollar for the period ahead.

Implications:

For Traders:

• Trade Structure: Those interested in following Goldman’s guidance might consider entering a short position in EUR/CAD, keeping an eye on the target and stop levels.

• Risk Management: Traders should be cautious of the risks involved, especially considering the various global macroeconomic factors that can affect currency valuations.

For Policymakers:

• Monetary Policy: The positioning suggests an expectation that the BoC may be more hawkish in its monetary policy compared to the European Central Bank (ECB), which may influence rate decisions.

Conclusion:

According to Goldman Sachs, the EUR/CAD pair offers a high-conviction short opportunity mainly based on the strong U.S. economy and the potential for hawkish monetary policy from the Bank of Canada. Traders interested in tactical, relative value plays might find this analysis and the subsequent trade idea valuable. However, it is crucial to consider risk factors and keep an eye on macroeconomic indicators that may affect the trade.

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This article was written by Adam Button at www.forexlive.com.

Monday is Labor Day in the United States and Canada so the stock, bond and futures markets will be closed while the FX market will be severely thinned. The economic calendar is bare and I wouldn’t expect too much drama.

This article was written by Adam Button at www.forexlive.com.

Headlines:

• Major currencies subdued awaiting US jobs report
• ECB’s Villeroy: Our options are open at the next and upcoming rate meetings
• ECB’s Vujčić: We won’t know in Sept, October or even November where the terminal rate is
• BOE’s Pill: We have not seen a downturn in core inflation which would reassure us
• RBA to keep cash rate unchanged next week – poll
• China reportedly to take more action in order to try and revive property sector
• Eurozone August final manufacturing PMI 43.5 vs 43.7 prelim
• UK August final manufacturing PMI 43.0 vs 42.5 prelim
• UK August Nationwide house prices -0.8% vs -0.2% m/m prior
• Switzerland August CPI +1.6% vs +1.5% y/y expected
• Italy Q2 final GDP -0.4% vs -0.3% q/q prelim

Markets:

• JPY leads, AUD lags on the day
• European equities higher; S&P 500 futures up 0.4%
• US 10-year yields up 0.6 bps to 4.096%
• Gold up 0.2% to $1,943.79
• WTI crude up 1.1% to $84.53
• Bitcoin up 0.1% to $26,050

It was a quiet session for FX as traders are waiting on the US non-farm payrolls later today before firming up their convictions.

The dollar is steady across the board as narrow ranges prevailed during the session and in general, is trading little changed across the board now. The bond market was also in a similar mood, with traders keeping their attention on the jobs report to come.

Equities did nudge a little higher though, gradually advancing during the session. However, I’d argue the gains are tentative as investors are holding out some hopeful optimism – which may end up being dashed by the key risk event later today.

In terms of data, we got manufacturing PMIs which just solidified the notion that factory activity in the euro area continues to be stuck in a rut. And that downturn isn’t improving well enough to suggest a change in the worsening outlook ahead of Q4.

Welp. Now over to the much awaited non-farm payrolls data before the long weekend in the US.

This article was written by Justin Low at www.forexlive.com.

• 34 of 36 economists see the RBA leaving the cash rate unchanged next week
• 21 of 35 economists see the RBA hiking to 4.35% or higher by year-end
• The remaining 14 economists forecast no more rate hikes for the year

Among Australia’s „big four“, ANZ, CBA, and Westpac are not seeing any more rate hikes by the RBA for this year while NAB is the only one forecasting one more rate hike to 4.35% in November.

This article was written by Justin Low at www.forexlive.com.

US:

• The Fed hiked by 25 bps as
  expected and kept everything unchanged at the last meeting.
• Inflation expectations and CPI readings continue to
  show disinflation with the last two Core CPI M/M figures
  coming in at 0.16%.
• The US PMIs missed
  expectations across the board last week.
• Fed Chair Powell’s speech at the Jackson Hole Symposium was
  mostly in line with what he said previously but he stressed on the need to be
  careful going forward and that continued strength in the labour market may
  require further rate hikes.
• ·The first half of the week saw US Job Openings and Consumer Confidence reports
  missing expectations by a big margin, followed by a miss in the US ADP data and
  a beat in the US Jobless Claims.
• The market doesn’t expect another hike from the Fed
  anymore, but a lot will depend on the data going forward.

New Zealand:

• The RBNZ kept its official cash rate unchanged while
  stating that it will remain at the restrictive level for the foreseeable future
  to ensure that inflation comes down back to target.
• The recent New Zealand inflation and employment data surprised to the upside but
  the PMIs are in contraction with the Services PMI last week plunging into
  contraction.
• The wage growth has also missed
  expectations and it’s something that the central banks are watching closely for
  second round effects.
• The New Zealand Retail Sales beat expectations although remain
  deeply negative.
• The RBNZ is expected to keep the
  cash rate steady at the next meeting.

NZDUSD Technical Analysis –
Daily Timeframe

On the daily chart, we can see that NZDUSD is
testing the key resistance at
0.5987 where we can also find the red 21 moving average for confluence. This is
where the sellers are likely to pile in with a defined risk above the
resistance to target another lower low. The buyers, on the other hand, will
want to see the price breaking higher to invalidate the bearish setup and
target the first swing high around 0.61handle.

NZDUSD Technical Analysis –
4 hour Timeframe

On the 4 hour chart, we can see that we’ve been diverging with the
MACD for a
long time and this is generally a sign of weakening momentum often followed by
pullbacks or reversals. In this case, the break of the trendline raises
the chances of a reversal with the 0.6117 level being the first target, but the
buyers will need the price to break above the 0.5987 resistance to confirm the
reversal.

NZDUSD Technical Analysis –
1 hour Timeframe

On the 1 hour chart, we can see that we
have a small range between the 0.5987 resistance and the 0.5930 support. A
breakout on either side should lead to a sustained and strong move and today’s
economic data might be the catalyst.

Upcoming Events

Today the market will
be focused on the main release of the week: the US NFP report. We will also
have the US ISM Manufacturing PMI an hour and a half later, but the labour
market data is the priority right now. A bad reading is likely to weaken the US
Dollar in the short term, but if the data is really bad, the market may start
to fear the recession and the greenback should come back soon after. A good
reading is likely to be linked with the soft-landing scenario and might be
bearish for the USD as well. Overall, it’s a mixed picture at the moment as the
Fed is expected to pause at the September meeting and we might get much worse
economic data before the next meeting in November.

This article was written by FL Contributors at www.forexlive.com.

• Need to be particularly wary about letting an inflation persistence dynamic set in

The BOE still needs to hike rates again, so the headline remark definitely sides with that. The OIS market is pricing in ~76% odds of a 25 bps rate hike for later this month currently.

This article was written by Justin Low at www.forexlive.com.

• Economic activity is slowing faster than we forecast
• Softening of economy may help bring down inflation faster
• But labour market resilience still an upside risk to inflation

At this point, it sure looks like they are leaning towards a pause but want to keep the door open to perhaps tighten policy again later on if need be. But the thing is, the economic deterioration in the euro area is going to make the case for rate hikes down the road extremely difficult. A rock and a hard place.

This article was written by Justin Low at www.forexlive.com.