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Strong hiring momentum slowed precipitously in August, as nonfarm payrolls rose by 235k jobs, well short of market expectations (+725k). That followed upward revisions to June and July of +134k jobs. The unemployment rate dropped 0.2 points to 5.2%, after ticking down to 5.4% in July.

As of August, nonfarm payroll employment was down by 5.3 million, or 3.5% from its pre-pandemic (February 2020) level.

Employment in leisure and hospitality, the sector emblematic of the pandemic was flat for the month. Gains in art entertainment and recreations (+36k) were offset by job losses at restaurants and bars (-42k). The sector remains down 10.0%, or 1.7 million jobs, versus pre-pandemic levels.

Job gains were mixed across other industries. Once again, job gains were up strongly in professional and business services (+74k). Gains were also seen in transportation and warehousing (+53k), other services (+37k), information services (+37k), finance (+16k) and manufacturing (+37k). Losers for the month were healthcare and social assistance (-6k), retail trade (-29k), and state government (-25k, most of which was a 20k drop in state educational services payrolls).

Atypical seasonal patterns in education hiring due to pandemic-related school closures and re-openings make interpretation of local government results challenging. As with state government education payrolls (-20k), local government education pulled back (-6k versus +225k in July) while private education (+40k) was up strongly again. What is important is that all sectors remain well below their pre-pandemic levels.

The drop in the unemployment rate was helped by the continued stagnation in labor force participation, which remained unchanged in August at 61.7%. This is 1.6 percentage points below what it was prior to the pandemic (February 2020).

The pandemic continues to affect work life as the share of people teleworking was 13.4% in August (up from 13.2% in July) and, among those not in the labor force, 1.5 million continue to report being prevented from looking for work due to the health crisis (relatively unchanged from July).

Key Implications

America's labor market recovery slowed in August as the pace of hiring dropped to levels last seen in January (+233k). The pace likely reflects the uncertainty presented by the spread of the Delta variant and constraints on labor availability.

The risks in the coming months are firmly to the downside due to the ongoing spread of the virus. As the Delta variant continues to circulate it is likely to lead to some consumer caution in areas where infections are rising strongly. This in turn could weigh on hiring in high-contact sectors in the near term.

However, as the Delta variant impact fades with time, we expect the unemployment rate to continue to fall as more pandemic-related constraints on work ease and activity normalizes.

The British pound has punched above the 1.38 level in the Thursday session. GBP/USD is currently trading at 1.3852, up 0.14% on the day.

UK business activity de-accelerates

The UK services sector remains in expansion territory, but the August Services PMI reading of 55.5 was nonetheless a disappointment. The release was down sharply from the July read of 59.6 and was the lowest reading since March, when the current recovery in business activity started. The report attributed the slowdown to staff shortages and disruptions in supply chains. Despite these pressing problems, service providers remain highly optimistic about the outlook for growth in services for the next 12 months.

US Nonfarm Payroll crashes

Analysts had predicted a rosy NFP for August, with a consensus of around 750 thousand new jobs. In the end, the release was a massive disappointment, coming in at just 275 thousand. The extremely soft reading could trigger a further general US dollar sell-off, either during the remainder of today’s session or early next week. The US dollar will be under pressure since any expectations of a taper in October have dissipated, as the Federal Reserve will likely delay plans for a taper until policy makers see stronger job data Unless Fed members are unexpectedly hawkish in the wake of the huge underperformance by nonfarm payrolls, the US dollar could be in for a very bumpy ride next week.

Overshadowed by the NFP was a strong wage growth figure – the gain of 0.6% was better than expected and the strongest in four months. The labor shortage in the US is pushing wages higher, and if the US economy continues to improve, this trend could well continue in the fourth quarter.

GBP/USD Technical Analysis

• GBP/USD is putting pressure on resistance at 1.3885. Above, there is resistance at 1.3988, just below the symbolic line of 1.40
• On the downside, 1.3821 is the first line of support. This is followed by support at 1.3654

US futures are set for a mixed start after NFP report missed expectations by a mile. 253K jobs were added in August well below the 750k forecast. The data pushes back on the Fed tapering bond purchases.

US futures

• Dow futures -0.06% at 35420
• S&P futures +0.01% at 4534
• Nasdaq futures -0.8% at 156011

In Europe

• FTSE +0.07% at 7173
• Dax +0.02% at 15845
• Euro Stoxx -0.26% at 4220

Futures trade lower after NFP

US stocks are set for a weaker start following the US non-farm payroll report. The closely watched US Labour Department’s job report revealed that 253k new jobs were added in August well below than the 750k that were forecast. However, the July number was upwardly revised to over 1 million jobs to 1053k which has helped to offset some of the disappointment.

This was the smallest gain in job creation in 7 months. The fall in job creation comes as the delta variant has seen US covid cases rise but also amid difficulties filing positions.

The data supports the view that the Fed will hold off on tapering its bond purchases until later in the year. The Fed will still want to see more progress in the labour market recovery, as Powell said at the Jackson Hole Summit.

The unemployment rate declined to 5.2% this was in line with analysts’ forecasts and down from 5.4%. Average wages rose by more than expected to 4.3% YoY well ahead of the 4% forecast

Where next for Dow Jones?

The Dow Jones trades within its acceding channel dating back to mid-June. However, the bearish reversal on the RSI suggests that momentum is slowing. The price has struggled around 35500 this week with a move above 35600 needed to reach fresh all-time highs. A move below 35150 could negate the near-term uptrend. A move below the 200 sma at 34600 could see the sellers gain traction.

FX – EUR shrugs off slowing growth and declining retail sales

The US Dollar is falling as bets cool over the Fed moving to tighten policy following huge miss in NFP. More evidence of the recover in the jobs market will be required by the Fed to before it starts tapering bond purchases,

EURUSD is treading water despite weak retail sales figures and as a supply shortage saps the strength of the economic recovery in the Eurozone. Business activity remained strong in August falling to 59 down from July’s 15 year high of 60.2. This was down from the flash 59.2 treading earlier in the month. Growth momentum is fading amid supply chain issues and amid the rise of delta covid cases.

Eurozone retail sales fell by 2.3% in July as the consumer driven bounce back slowed at the start of Q3. The figure comes after retail sales jumped in June by 1.5%. Sales have been volatile amid the reopening.

• GBP/USD +0.12% at 1.3856
• EUR/USD +0.17% at 1.1893

Oil set for 2% gains on the week

Oil is edging higher for the third straight session. Oil is set to finish the week 2% higher amid easing fears over the demand outlook and expectations of a slow recovery for the US Gulf Coast export and refining hub from the hurricane that hit earlier this week. Oil prices have remained supported thanks to larger than forecast inventory draws, even as OPEC agreed to stick to the plan to add 400k barrels per day over the coming months.

Baker Hughes rig count data will be in focus later today.

• US crude trades +0.29% at $70.06
• Brent trades +0.59% at $73.36

Looking ahead

• 14:45 US Markit Services PMI
• 15:00 ISM Services PMI
• 18:00 Baker Hughes Rig Count

Daily Pivots: (S1) 109.87; (P) 109.99; (R1) 110.07; More...

USD/JPY continues to stay in range of 109.10/110.79 and intraday bias remains neutral first. On the downside, break of 109.10 will target 108.71 support first. Firm break there will resume the decline from 111.65 and target 38.2% retracement of 102.58 to 111.65 at 108.18 next. On the upside, break of 110.79 will resume the rebound from 108.71 to retest 111.65 high.

In the bigger picture, medium term outlook is staying neutral with 111.71 resistance intact. The pattern from 101.18 could still extend with another falling leg. Sustained trading below 55 day EMA will bring deeper fall to 107.47 support and below. Nevertheless, strong break of 111.71 resistance will confirm completion of the corrective decline from 118.65 (2016 high). Further rise should then be seen to 114.54 and then 118.65 resistance.

Daily Pivots: (S1) 0.9133; (P) 0.9150; (R1) 0.9161; More....

USD/CHF is still bounded in range of 0.9098/9241 and intraday bias remains neutral. On the downside, break of 0.9098 will target 0.9017 support first. Further break there will likely resume the decline from 0.9471 through 0.8925 low. On the upside, break of 0.9241 resistance should resume the rise from 0.8925 through 0.927.

In the bigger picture, the failure to sustain above 55 week EMA (now at 0.9176) retains medium term bearishness in USD/CHF. Break of 0.8925 support should resume the whole decline form 1.0342 (2016 high) through 0.8756 low. However, break of 0.9273 resistance and sustained trading above 55 week EMA will be an early sign of bullish trend reversal. Focus will then turn to 0.9471 resistance for confirmation.

Daily Pivots: (S1) 1.3789; (P) 1.3815; (R1) 1.3861; More...

GBP/USD's rise from 1.3601 is still in progress and intraday bias remains on the upside for 1.3982 resistance. Decisive break there will pave the way back to retest 1.4248 high. On the downside, break of 1.3730 minor support will turn bias back to the downside for 1.3570 low, and possibly further to 1.3482 key resistance turned support.

In the bigger picture, current development argues that rise from 1.1409 (2020 low) has completed at 1.4248, after failing 1.4376 resistance. Fall from there could either be correcting the rise from 1.1409, or starting another falling leg inside long term sideway pattern. In either case, sustained break of 1.3482 resistance turned support will target 38.2% retracement of 1.1409 to 1.4248 at 1.3164 first. Break there will pave the way to 61.8% retracement at 1.2493.

Daily Pivots: (S1) 1.1849; (P) 1.1862; (R1) 1.1890; More...

EUR/USD rises to as high as 1.1908 so far today. Intraday bias remains on the upside with focus on 1.1907 resistance. Decisive break there will indicate that fall from 1.2265, as well as the consolidation pattern from 1.2348, have completed. Near term outlook will be turned bullish for 1.2265/2348 resistance. On the downside, break of 1.1792 minor support will turn bias back to the downside for 1.1602/63 support zone instead.

In the bigger picture, rise from 1.0635 is seen as the third leg of the pattern from 1.0339 (2017 low). Further rally remains in favors long as 1.1602 support holds, to cluster resistance at 1.2555 next, (38.2% retracement of 1.6039 to 1.0339 at 1.2516). However sustained break of 1.1602 will argue that the rise from 1.0635 is over, and turn medium term outlook bearish again. Deeper fall would be seen to 61.8% retracement of 1.0635 to 1.2348 at 1.1289 and below.

Dollar spikes lower in early US session after huge NFP miss. But the selloff is only firm against commodity currencies at the time of writing. In particular, the greenback is trying to recovery against European majors, as well as Sterling. Traders might need a bit more time to make up their mind. While a September announcement on Fed tapering is now looking much less likely, it could still come in November.

Technically, EUR/USD is struggling to break through 1.1907 resistance with power for now. We'd continue to pay attention to this level. Sustained break would turn near term outlook bullish for 1.2265/2345 resistance zone. At the same time, Gold breaks out to the upside, but there is no follow through buying through 1832.47 resistance yet. Sustained break of this resistance should bring even stronger rise to 1916.30 resistance next.

In Europe, at the time of writing, FTSE is up 0.14%. DAX is down -0.01%. CAC is down -0.62%. Germany 10-year yield is up 0.014 at -0.368. Earlier in Asia, Nikkei rose 2.05%. Hong Kong HSI dropped -0.72%. China Shanghai SSE dropped -0.43%. Singapore Strait Times dropped -0.16%. Earlier in Asia, Japan 10-year JGB yield rose 0.0073 to 0.042.

US NFP grew only 235k, unemployment rate dropped to 5.2%

US non-farm payroll employment grew only 235k in August, well below expectation of 750k. Notable job gains occurred in professional and business services, transportation and warehousing, private education, manufacturing, and other services. Employment was still down by -5.3m from pre-pandemic level in February 2020.

Unemployment rate dropped from 5.4% to 5.2%, matched expectations. Number of unemployment persons edged down to 8.4m. Both measures remain far above their levels prior to the pandemic (unemployment rate at 3.5% and unemployed at 5.7m). Labor force participation rate was at 61.7%, staying in the 61.4% to 61.7% since June 2020.

Average hourly earnings rose 0.6% mom, above expectation of 0.4%.

Eurozone retail sales dropped -2.3% mom in Jul, EU down -1.9% mom

Eurozone retail sales dropped -2.3% mom in July, well below expectation of 1.2% mom rise. For the month, the volume of retail trade decreased by -3.5% for non-food products, by -1.6% for automotive fuels and by -0.7% for food, drinks and tobacco.

EU retail sales dropped -1.9% mom. Among Member States for which data are available, the largest monthly decreases in total retail trade were registered in Ireland (-5.9%), Germany (-5.1%) and Austria (-3.9%). The highest increases were observed in Croatia (+2.5%), Malta (+2.3%) and Luxembourg (+2.2%).

Eurozone PMI composite finalized at 59.0, strong GDP rise on cards for Q3

Eurozone PMI Services was finalized at 59.0 in August, down from July's 59.8. PMI Composite was finalized at 59.0, down from 60.2. Looking at some member states, PMI composites were generally strong: Ireland (62.6), Spain (60.6), Germany (60.0), Italy (59.1), France (55.9).

Joe Hayes, Senior Economist at IHS Markit said: "It was another solid result for euro area businesses in August, according to the PMI numbers, which still point to rapid rates of expansion in output and demand.... but a step down since the preliminary 'flash' number tells us that this growth momentum is fading... Regardless, another strong quarter-on-quarter rise in GDP is on the cards for the third quarter, and we're certainly on track for the eurozone economy to be back at pre-pandemic levels by the end of the year, if not sooner."

Germany PMI Services was finalized at 60.8 in August, down from July's record high of 61.8. PMI Composite also dropped to 60.0, down from July's all-time high of 62.4.

France PMI Services was finalized at 56.3 in August, just slightly down from July's 56.8. PMI Composite was finalized at 55.9, slightly down from June's 56.6.

UK PMI services finalized at 55.0, staff shortages, self-isolation rules and stretched supply chain capacity

UK PMI Services was finalized at 55.0 in August, down from July's 59.6, and way below May's record high of 62.9. PMI Composite was finalized at 54.8, down from July's 59.2. Markit said recovery in business activity eased further from May's peak. Employment numbers rose at fastest rate since survey began in July 1996. Business optimism also climbed to three-month high.

Tim Moore, Economics Director at IHS Markit, which compiles the survey: "The service sector lost momentum for the third consecutive month as the impact of looser pandemic restrictions faded in August. Many businesses suffered constraints on growth due to staff shortages, self-isolation rules and stretched supply chain capacity."

Australia retail sales dropped -2.7% mom in Jul, NSW down -8.9% mom

Australia retail sales dropped -2.7% mom in July, the largest decline this year.

Ben James, Director of Quarterly Economy Wide Surveys, said: "Lockdowns and stay-at-home orders in many parts of Australia continued to impact retail trade in July, with many non-essential retail businesses closing their physical stores.

"In particular, the first full month of lockdown in New South Wales, following the Delta outbreak in June, saw retail turnover in the state fall 8.9 per cent. This was the largest fall of any state and territory since August 2020."

Australia AiG construction dropped to 38.4, from healthy expansion to steep contraction

Australia AiG Performance of Construction Index dropped sharply by -10.3 pts to 38.4 in August. Activity dropped -7.5 to 32.9. Employment dropped -11.8 to 49.0. New orders dropped -13.1 to 364. Input prices eased slightly by -5.4 to 91.8. Selling prices dropped -11.6 to 69.6.

Ai Group Head of Policy, Peter Burn, said: "Australia's construction sector has shifted from healthy expansion to steep contraction in a flash as restrictions in the face of COVID-19 outbreaks have closed sites and disrupted supply chains.

"The impacts were concentrated in the south-east corner of the country although border closures by other states also contributed to supply chain disruptions and prevented the movement of construction personnel."

China PMI services dropped to 46.7, PMI composite dropped to 47.2

China Caixin PMI Services dropped sharply from 54.9 to 46.7 in August, well below expectation of 52.6. PMI Composite dropped from 53.1 to 47.2, first contraction since April 2020. Caixin said business activity and new orders both fell amid uptick in COVID-19 cases. Companies reduced their staffing levels slightly. Input costs rose at slower pace, output charges declined.

Wang Zhe, Senior Economist at Caixin Insight Group said: "The Covid-19 resurgence has posed a severe challenge to the economic normalization that began in the second quarter of 2020. Both manufacturing and services shrank in August, with the latter hit harder than the former...

"Official economic indicators for July were worse than the market expected, indicating mounting downward pressure on economic growth. Authorities need to take a holistic view and balance the goals of containing Covid-19, stabilizing the job market, and maintaining stability in prices and supply."

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.1849; (P) 1.1862; (R1) 1.1890; More...

EUR/USD rises to as high as 1.1908 so far today. Intraday bias remains on the upside with focus on 1.1907 resistance. Decisive break there will indicate that fall from 1.2265, as well as the consolidation pattern from 1.2348, have completed. Near term outlook will be turned bullish for 1.2265/2348 resistance. On the downside, break of 1.1792 minor support will turn bias back to the downside for 1.1602/63 support zone instead.

In the bigger picture, rise from 1.0635 is seen as the third leg of the pattern from 1.0339 (2017 low). Further rally remains in favors long as 1.1602 support holds, to cluster resistance at 1.2555 next, (38.2% retracement of 1.6039 to 1.0339 at 1.2516). However sustained break of 1.1602 will argue that the rise from 1.0635 is over, and turn medium term outlook bearish again. Deeper fall would be seen to 61.8% retracement of 1.0635 to 1.2348 at 1.1289 and below.

Economic Indicators Update

US non-farm payroll employment grew only 235k in August, well below expectation of 750k. Notable job gains occurred in professional and business services, transportation and warehousing, private education, manufacturing, and other services. Employment was still down by -5.3m from pre-pandemic level in February 2020.

Unemployment rate dropped from 5.4% to 5.2%, matched expectations. Number of unemployment persons edged down to 8.4m. Both measures remain far above their levels prior to the pandemic (unemployment rate at 3.5% and unemployed at 5.7m). Labor force participation rate was at 61.7%, staying in the 61.4% to 61.7% since June 2020.

Average hourly earnings rose 0.6% mom, above expectation of 0.4%.

Full release here.

The Euro started a fresh increase above the 1.1800 resistance zone against the US Dollar. The EUR/USD pair broke the key 1.1820 resistance zone to move into a bullish zone.

The pair even cleared the 1.1850 zone and settled above the 50 hourly simple moving average. A high is formed near 1.1884 and the pair is now consolidating gains. An initial support on the downside is near the 1.1870 level.

There is also a key bullish trend line forming with support near 1.1865 on the hourly chart. Any more losses could lead the pair towards the 1.1840 support zone and the 50 hourly SMA.

On the upside, an initial resistance is near the 1.1885 level. A clear break above the 1.1885 and 1.1900 resistance levels could lead the pair towards the 1.1920 zone. The next major resistance sits near 1.1950 on FXOpen.