Morning Report: USD Retracement Ahead Of The NFP’s

As markets await headline data later today the USD has commenced a retracement after printing six year highs earlier in the week. The initial retracement has been spurred by a distinct lack of detail with respect to additional measures forthcoming from the ECB. Draghi’s reluctance to specify balance sheet targets and the fact that he did not repeat last weeks phrase, that the council is ready to adjust ‘the size and composition of purchases’ proved sufficient catalyst for a round of profit taking in the USD. Now all eyes turn to today’s NFP release, markets are poised for a recovery from August’s seasonally impaired miss, anticipating a strong print today of 210-15k for the headline, with unemployment expected unchanged at around 6.1%. If the data comes in in-line this should support the USD into the close today, a miss could add further weight to the current retracement.

Technically the USD’s overbought conditions have finally come to bear on the market. The pullback has been witnessed in both equities and the USD which have been broadly positively correlated of late.  Although many technical indicators have registered heavily overbought short term readings, the price action thus far appears to be developing in a corrective pattern consistent with the well established USD uptrend. Current price patterns suggest that the medium term uptrend should remain in tact. It is important to monitor the price action closely over the coming days for any early warning signs that the corrective nature of the price action is actually morphing into a more significant reversal pattern.


The beacon for the early warning alarm on a more significant reversal is the USDJPY,  this market has been demonstrating impulsive bullish price patterns since early to mid August. The pullback from the initial 110 test should present an excellent opportunity to reposition on the long side in the mid to late 107 area. It is critical to monitor todays close, as if we print sub 109.28 tonight, this will qualify as a bearish reversal week and indicate a more prolonged period of correction is likely to follow. It is also worth noting that the DXY may also give cause to pause, as it may break its string of 11 higher weekly closing prints if it fails to hold 85.64 on the New York close tonight.

Near term price patterns for the USDJPY would suggest that first support at 108 appears robust, it will be important to see buyers emerge on any first dip sub 108 as confirmation of demand remaining strong. Near term resistance will likely show counter offers on the books, on the first retest of 109.50 if these are easily filled then price should focus on stops above the highs printed earlier in the week. The major resistance comes in the late 110 mid 111 area harbouring the 50% retracement of the 1998 high to the 2011 low. Any continued pressure on the late 107 zone will be a red flag to the bulls tonight and an early warning that we likely see a deeper correction next week.

Resistance 109.50 110.50

Support      107.90 107.40