Following the Fed’s latest FOMC release, markets are highly hopeful of a September rate hike but again still cognisant of the caveat that a hike will be data dependant and as such, today’s NFP release takes on extra importance and will likely define the USD trading outlook for the rest of August.
Markets are already fairly USD bullish going into the number with the majors all weakened into the bottom of recent range against USD with USDJPY & USDCAD into the upper end of their recent trading ranges, however positioning is still not fully loaded and their is room for proper engagement on a strong number and a sharp reduction on a weak one.
The figure is expected to come in at 223k vs 223k previously with 140k and 280k marking the upper and lower limits of the analyst forecast ranges. The range is a little wider than expected given USD strength going into the number and so clearly there are still strong reservations about job growth in the US economy.
So what are some potential scenarios we could see play out today on the release?
175 Or Lower
If we see a number this weak expect sharp reductions of USD long. Initial reactions favour EURUSD breaking higher testing the pivotal 1.1050 zone with 1.1167 a clear target. 1.08 support has been strongly defended so far and with EURUSD penned in to the bottom of its 2 month range there is plenty of room for a violent move to the upside.
175 – 200
Sub 200k will be highly disappointing for USD bulls and though not necessarily dismissive of the chances of a September rate hike, will certainly not justify initiating USD longs at these levels. This scenario could actually offer the best medium term opportunity creating some decent retracement in recent trends to allow for positioning at better levels for a resumption of these trends. AUDUSD has been heavily pressured these last 2 months and should see relief on a print in this range taking spot back up to test the .7530s breakdown area where we likely see selling interest step back in between there and the .76 area. I would also look for a pullback in USDCAD to the post BOC rate cut high area of 1.2930-50 to enter longs.
200 – 225
A print in this range will keep markets favourable towards USD longs, probably not enough to ignite a heavy increase in positioning but should certainly see EURUSD challenging the 1.08 level again. Yesterday’S BOE “Super Thursday” came in a little less dovish than UK Bulls were hoping for and we saw GBP down post release. We likely see a continuation of this move targeting rising trendline support around 1.54
A strong print in this range should see further USD upside engagement with players looking to increase already held USD longs and set fresh positions if not already holding. USDCAD has retraced nicely from the multi-year high of 1.3213 and sitting against the broken July high which now acts as support offers a decent spot to play for further upside.
250 Or Higher
The NFP release can at times produce some truly hysterical reactions and given the level of anticipation in the market regarding a possible September hike, a number this strong will encourage USD bulls with the Fed having cited need to see “some further improvement” in labour market conditions. USDJPY is itching to break higher and a print this strong should see the multi-year 125.80s high taken out very sharply with plenty of stops sitting above there to fuel further upside .