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Markets are expecting NFP report to show 188k job growth in September. Unemployment rate is expected to drop 0.1% to 3.8%. Wage growth will again be a major focus. Average hourly earnings are expected to rise 0.3% mom.

Related pre-NFP job data were generally solid. ADP report showed 230k growth in private sector jobs, well above exceptiones. ISM manufacturing employment rose 0.3 to 58.8. ISM non-manufacturing was jumped notably by 5.7 to 62.4, which is very impressive. Initial jobless claims and continuing claims hit multi decade record lows.

So overall, we'd expect NFP to give a set of decent to strong data. The main question is how fast wage growth has been. Meanwhile, the reaction in forex markets is not that straight forward. We'll have to see how treasury yield and stocks respond to the data at the same time.

Here are some other NFP previews:

• NFP Preview: Stocks Succumb To Surging Bond Yields
• US Jobs Data Unlikely A Game Changer, Still Likely To Generate Short-Term Volatility
• Special Report: Insights About US- NFP Data

ECB Executive Board member Benoit Coeure said in a speech yesterday that "the euro area economy has now enjoyed five years of uninterrupted growth". And, GDP is "well above the levels we observed before the great financial crisis."

He also pointed out that labor market has "improved notably" in recent years. Employment has risen by 9.2m since mid-2013. Unemployment rate dropped to 8.1% in August and hit the lowest level in 10years. Participation rate also rose 1.5 to 64% from a decade ago.

On inflation, Coeure added that "with stronger growth and rising employment, we also see a gradual build-up in price pressures". Employee compensation have "finally started to recover" Also, he noted that as they are growing faster than the rate of inflation, many people are seeing their real incomes rising.

Overall, he said, it is fair to say that the euro area economy is in the best shape it has been in for many years.

Full speech here.

Australia retail sales grew 0.3% in August in seasonally adjusted term, matched expectations. There were rises in five of the six industries, except that food retailing was relatively unchanged at 0.0%.

Sales in South Australia led the way by rising 0.8%, followed by Tasmanian by 0.5%, New South Wales by 0.5%, Victoria and Australian Capital Territory both by 0.2%, Queensland by 0.1%. Sales i Western Australia was unchanged at 0.0% whilst there was a fall in the Northern Territory by -1.3%.

Full release here.

Also release in Asian session, Japan overall household spending rose 2.8% yoy in August, versus expectation of 0.2% yoy. Labor cash earnings rose 0.9% yoy versus expectation of 1.3% yoy.

Key Highlights

• The US Dollar remained in a consistent uptrend from the 111.80 support against the Japanese Yen.
• There is a major bullish trend line formed with support at 113.60 on the 4-hours chart of USD/JPY.
• The US Initial Jobless Claims for the week ending Sep 29, 2018 declined from 215K to 207K.
• Today, the US NFP figure for Sep 2018 will be released, which is forecasted to increase 185K.

USDJPY Technical Analysis

The US Dollar started a solid upward move and traded above 114.00 recently against the Japanese Yen. The USD/JPY pair is currently placed nicely above the 113.80 and 113.50 support levels.

Looking at the 4-hours chart, the pair gained traction above the 113.20 resistance area. Later, there was a bullish flag formed with resistance at 113.80. Finally, buyers gained traction and the pair surged above the 113.80 and 114.00 resistance levels.

A new monthly high was formed at 114.55 before the pair started a downside correction. It moved below the 50% Fib retracement level of the last wave from the 113.52 low to 114.55 high.

However, there are many supports on the downsides such as 113.80, 113.60 and 113.50. There is also a major bullish trend line formed with support at 113.60 on the same chart. As long as the pair is trading above the 113.50 support, it remains in an uptrend and it could bounce back.

Below 113.50, the pair is likely to correct further towards the 113.00 and 112.80 supports. On the upside, an initial resistance is at 114.40 followed by the last swing high at 114.50.

Fundamentally, the US Initial Jobless Claims figure for the week ending Sep 29, 2018 was released recently. The market was looking for a decline from the last reading of 214K to 213K.

However, the result was better than the market forecast as the Initial Jobless Claims declined from the last revised reading of 215K to 207K.

The report added that:

The 4-week moving average was 207,000, an increase of 500 from the previous week’s revised average. The previous week’s average was revised up by 250 from 206,250 to 206,500.

Overall, in the short term, there could be downsides in USD/JPY, but the overall trend remains bullish above the 113.50 and 113.00 levels.

Economic Releases to Watch Today

• US nonfarm payrolls Sep 2018 – Forecast 185K, versus 201K previous.
• US Unemployment Rate Sep 2018 – Forecast 3.8%, versus 3.9% previous.
• US Average Hourly Earnings (MoM) Sep 2018 – Forecast 0.3%, versus 0.4% previous.
• Canada’s employment Change payrolls Sep 2018 – Forecast 25K, versus -51.6K previous.
• Canada’s Unemployment Rate Sep 2018 – Forecast 5.9%, versus 6.0% previous.

USDCAD targets further recovery following its second day of higher close on Thursday. As long as it trades and holds above the 1.2882 level, it leaves its recovery intact. Support lies at the 1.2900 level where a break will aim at the 1.2850 level. Further down, support comes in at the 1.2800 level where a turn lower may occur. Then further weakness aim at support located at the 1.2700 level. On the upside, resistance lies at the 1.2950 level where a violation will turn focus on the 1.3000 level. Further up, resistance resides at the 1.3050 level and then the 1.3100 level. All in all, USDCAD looks to strengthen further on corrective recovery.

The US dollar is higher across the board versus major pairs ahead of the U.S. non farm payrolls (NFP) on Friday. The release of private payrolls on Wednesday at 230,000 jobs in September beat the market forecast of 185,000 positions. The NFP is expected to show a gain of 190,000 jobs when it is published on Friday, October 5 at 8:30 am EDT.

The U.S. Federal Reserve raised interest rates last week and strong fundamental data is putting the odds of a December rate hike at 83.3 percent as per the CME’s FedWatch tool. A strong jobs headline and more importantly a solid gain in hourly earnings will make a stronger case for a December rate hike.

• NFP expected to show a gain of 190,000 jobs in August
• Average hourly earnings forecasted to rise by 0.3 percent
• Canadian jobs to rebound with a 25,000 position gain

Dollar Awaits Jobs Report

The EUR/USD is down 0.74 percent this week. The single currency is trading at 1.1517 before the release of the NFP jobs report. Fundamental data in the US has supported the USD at the same time that economic indicators have softened in Europe in tandem with rising concerns about the Italian budget.

Fed Chair Powell’s speech and press conference after the FOMC was a big factor in the rise of the dollar after the market had already priced in the 25 basis points lift to interest rates.

Chair Powell spoke on Wednesday and put forth a gradual rate hike path as the US economy continues to march onwards.

The monetary policy divergence between the Fed and other major central banks was clear last week as fundamentals back the US policy makers who will keep tightening, while questions remain on how effective other monetary policies around the world have been.

The euro regained some ground on Thursday, but investors will await the release of the US jobs report and if solid inflation signals appear will put the single currency under pressure.

Canadian Dollar Lower But Still Shielded by USMCA

The Canadian dollar fell on Thursday as the NFP report approaches. The ADP private payroll report beat the forecast on Wednesday and with it a strong probability of a December rate hike by the Fed.

The loonie is nearly flat on weekly trading as all the gains from the USMCA announcement are gone. The strong monthly GDP last Friday and the USMCA announced on Monday are still shielding the loonie from further loses.

The monthly Canadian GDP data released last week is driving higher expectations of a interest rate lift in October.

The Bank of Canada (BoC) held rates in September ahead of a highly anticipated Fed rate lift that came to pass.

The US central bank has forecasted another rate hike in 2018 and 2 or 3 more next year as part of its economic projections published Wednesday.

BoC Governor Stephen Poloz spoke last week addressing the rising inflation and Friday’s GDP data point puts a rate hike firmly on the table in the short term.

Employment data on Friday will give insight into what the next steps are for the BoC. The NFP will steal most of the spotlight but CAD traders will be expecting a recovery from last month where the economy lost 51,600 jobs.

The losses came mostly in part time positions, but investors will look for signs of wage growth as a positive and to validate the central bank lifting rates later this month.

Oil Tumbles After Rumors of Increased Supply from Saudi Arabia and Russia

Oil prices fell on Thursday after investors took profits on the latest rally.

The biggest factor impacting energy markets is the looming sanctions against Iranian exports. The Iranian supply disruption offset the large inventory data point on Wednesday. Reports of Saudi Arabia and Russia ramping up production to cover the shortfall in supply took energy prices lower.

The drop in supply has kept prices higher with all eyes on Saudi Arabia waiting for signs a production increase after US President Donald Trump has called out the OPEC to do something to bring prices down.

Gold Pressured by Strong Dollar

Gold lost on Thursday, but is still higher on a weekly basis.

The anticipation for the NFP report on Friday could point to another interest rate hike and further pressure the yellow metal.

The Fed raised the benchmark rate by 25 basis points and the futures market is pricing in a 78.5 percent probability of a lift in December.

Friday’s U.S. non farm payrolls (NFP) will be the final test of the yellow metal.

The US is expected to add 190,000 jobs with average hourly earning rising 0.3 percent.

Higher inflation expectations validate the Fed’s forecasts and the market is pricing in a rate hike in December and follow ups in 2019.

Market events to watch this week:

Friday, October 5
8:30am CAD Employment Change
8:30am CAD Trade Balance
8:30am USD Average Hourly Earnings m/m
8:30am USD Non-Farm Employment Change

China's Spy's, election meddling and NFP to keep traders busy

The market has that distinct odour of risk off. It's incredible just how quickly sentiment has shifted in a mere 24 hours. There were nascent signs of asset rotation in Asia markets yesterday when the US fixed income yields ripped higher. And prospects of Feds draining the punch bowl at a quicker rate has investors reconsidering their bullish lean with US equities trading at record highs.

In response to tech led equity sell-off the US yields have backed off, so I surmise US equities are now driving the sentiment bus as volatility is getting bid up with the VIX trading above 15 overnight. But worrying headlines around China/US relations seem to have triggered caution in other markets. More so after Fed governor Kevin Warsh went into hyperbolic overdrive to suggest US-China relations are worse today than they were in the Nixon's era. But I think market concerns have more to do with all the noise about China trying to sabotage the US midterm elections have US investors temporarily spooked. Knowing that if the White house does prove that China is meddling in the US midterm elections, we can assume a heavy-handed response on the trade front, and US tech companies that have extensive trade relations with China would be at high risk of falling prey to an escalating trade war.

Not to mention accusations of China employing microchips to infiltrate and spy on major US companies has sent more jitters through markets Bloomberg

Elsewhere, commodities are trading horribly as Oil markets have convincingly backed off this week high water marks. And looking at some of the carnage a broader sector of assets, Im reminded that “nothing in this universe, including the universe, lasts forever.”

I think its a combination of factors leading to this turnaround, notwithstanding the latest rip in the US, fixed income yields sending negative cross-currents. While this week's Fed speak does paint an exceedingly rosy picture of the US economy, the prospect of higher inflation and the Fed responding with even quicker and steeper rate hikes, historically faster than expected Fed rate hikes have posed a considerable negative for equity markets.

I don't necessarily view higher US interest rates, especially at these historically low levels as a good enough cause and effect to torpedo longer-term bullish equity sentiment. But if it is proven to be a false flag, and China is indeed proved to be meddling in US election interests, it will trigger a swift and uncompromising reprisal from the hawks in the US administration and would sound the alarm bells across global markets.

Day in day out these markets are full of intrigues, and frankly, we have President Trump to thank or blame, depending on what side of the Vol tracks you're riding. But indeed, it does look like a bumpy ride for Q4.

Oil markets

From any fundamental perspective, it should not have been a strong week for oil prices after a massive DOE US inventory builds, Oklahoma, crude stocks rose about 1.7 million barrels from Sept. 28 to Tuesday while factoring the Reuters article that suggested Saudi -Russia le OPEC mega cartel will add more barrels to offset Iranian shortcomings.

Traders were so overly focused on Iran sanctions negatively affecting physical supply along with ambiguity around Saudi Arabia spare production capacity; that clearly, traders were blind to the facts this week and are now going through a bit of a reality check ahead of the weekend.

But the decline in US equities and waning risk sentiment also factored into the sell-off

Oil markets remain in the bull zone. But with a lot of the short-term speculator froth running for the exits, there a tendency for longer-term players to revert to low ball bids knowing the markets will come to them. But the Brent $ 84.50-75 support channel remains very well bid, and it would take a break of $84 in my view to suggest that last nights price action was anything other than profit taking after this week's huge move higher.

Gold Markets

In the absence of any convincing, clear-cut catalyst the markets have been in consolidation mode. Cleary the markets are attaching a whole lot of significance to tonight's NFP print as the markets have remained rangebound as trader know the outcome of tonight's data can significantly shape the market's rate hike expectations and the near-term outlook for the USD. So indeed, there a lot riding on tonight employment data. Failing any USD surprises, expect current tight ranges to persist ahead of tonight's data print

Currency Markets

EM FX traded weakly. However, US yields are stabilising lower, and EUR is surprisingly resilient.

G-10

But we are in for a very unsettled 20 + hours as currency traders table if full jockeying for position ahead of the payrolls data for NFP, evaluating and trading the NFP correctly while factoring in the expected waves of positions squaring ahead of the US long weekend.

Japanese Yen

Dollar-Yen traded lower as US bond yields fell while markets continued to debate JGB's and the inevitable BOJ policy shift as a Reuters article was making the rounds in London. Reuters

But everyone was quietly cutting long USDJPY in Tokyo markets earlier in the day when intense focus fell on JGB's that we're moving to the .15 area after the BoJ last intervened at .147

Markets are long USDJPY, so position squaring ahead of tonight NFP also contributed. Key levels remain 113.50 and 114.50

The Canadian Dollar

Mired in the stronger USD but with double trouble on the payroll front as both Canada and US are release on Friday, CAD traders have pared back bullish bets considerably. With the BoC rate hike firmly entrenched in markets views, CAD traders are looking for a spark to upend those nasty Canadian dollar perma bears on Bay street.

EM Asia currencies

The external environment isn't at all amicable for IDR -INR -PHP, the weakest links in EM Asia currency chain Higher US rates, tepid growth outside of the US markets, soaring Oil prices compounded by concerns over the impact of US-China trade tensions it's near impossible to hold even the slightest of bullish conviction.

Indian Rupee

But again, its back to the unconventional Well for India's government to stem the INR deep depreciation.

While offering up a barter and deferred promissory notes are being considered as an option to reduce India's reliance on the USD for trade and oil purchase.

ON first China could charge a decent premium on the INR-CNY currency trade agreement to make this fly.

But buying oil from Iran or Venezuela could trigger negative reprisal from the US especially for those companies that were holding off in the hope of winning sanction waivers for the USD. India's refineries have been busy bees loading up on Iranian oil ahead of Nov 4 sanctions when traditional USD banking settlement channels will be blocked. Reuters

The Malaysian Ringgit

Demand for MYR has been tepid at best but yesterday warning shot across the bow from the world bank has dented sentiment even more after downgrading growth forecast. With the upcoming budget in focus, it puts a lot of pressure on the Malaysia government to deliver a fiscally prudent measure. While terms of trade do remain favourably due to oil prices waning growth could be a real negative for the MYR as it could trigger a dovish response from the BNM.

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Yen is currently trading as the strongest one for today thanks to risk aversion. US treasury yields are another another day of strong rally. At the time of writing, 30-year yield is up 0.046 at 3.365. 10-year yield is up 0.045 at 3.206. It feels like there is no way back after 10 year yield took out 3.115 key resistance yesterday.

Stocks, however, suffer steep selloff as reaction to surging yields. DOW is currently down -1.02% at 26555. S&P 500 down -0.8% and NASDAQ down -1.51%. In Europe, CAC led the decline by losing -1.47%, DAX was down -0.35% and FTSE down -1.22%.

It should also be noted that 10 year JGB yield rose 0.0178 to 0.159. German 10 year yield rose 0.056 to 0.533. UK 10 year gilt yield rose 0.0917 to 1.535. So JPY, EUR and GBP are not too bothered by the strength in US yields today.

Sterling follows as the second strongest one as lifted by Brexit hope again. The key is that Prime Minister Theresa May's new Irish proposal, without details yet, seemed to be welcomed by EU as a "step in the right direction". Also, EU chief negotiator Michel Barnier is reported to be looking at some more improvements in the offer to overcome the remaining obstacles ahead of Oct 17-18 EU summit. Barnier was reported affirming that EU is "definitely engaging with Britain" even though he insisted on the so called "sound backstop solution" on Irish border.

New Zealand and Australian Dollar are rather pathetic as suffering from both risk aversion as well as monetary policy divergence. Canadian Dollar dives in delayed reaction to poor Ivey PMI, which tumbled from 61.9 to just 50.3 in September.

The pair remains in red on Thursday and fell to the lowest since 16 July at 0.8840, where 200SMA contained two-day fall.

The latest comments from Irish PM regarding Brexit offered fresh support to sterling.

Bears look for fresh negative signals on eventual close below Strong Fibo support at 0.8859 (50% of 0.8620/0.9098 ascend, reinforced by weekly Kijun-sen), following several unsuccessful probes through this support.

Next bearish signal could be expected on sustained break below 200SMA, which would open way towards next pivotal support at 0.8803 (daily cloud base / Fibo 61.8%). Bearish setup of daily MA's and weak momentum studies keep negative outlook along with twist of weekly cloud which could attract further weakness. Broken 100SMA (0.8874) should ideally limit upticks and guard upper pivot at 0.8911 (base od ascending daily cloud).

Res: 0.8859; 0.8874; 0.8911; 0.8936
Sup: 0.8840; 0.8803; 0.8775; 0.8733