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The euro is flat in Friday trade. Currently, EUR/USD is trading at 1.1873, up 0.01% on the day.

Eurozone data a mixed bag

Eurozone numbers were a mix on Friday. Services PMIs for August in Germany and the eurozone continue to indicate strong expansion in the services sector (60.8 in Germany and 59.0 in the eurozone). Both releases were weaker than in July, but not enough to worry investors and weigh on the euro. The news was less positive from eurozone retail sales. The July reading pointed to a sharp decline of 2.3%, marking a 3-month low.

The euro was unmoved after today’s eurozone events, but could show some volatility after the release of the US nonfarm payrolls reports later today. The US dollar has struggled this week and the currency markets appear ready for a further dollar sell-off today. However, such a move is contingent on a soft reading from today’s nonfarm payrolls report. The consensus is around 750 thousand new jobs, and if the release is higher than expected, we could see a short squeeze on the US dollar. If the reading surprises to the downside, EUR/USD will likely push into 1.19 territory before the weekend.

The Jackson Hole Summit is behind us but the Federal Reserve remains on the minds of investors. Today’s nonfarm payrolls could play a critical role in the timeline of a Fed taper. Fed policy makers have sent a clear message to the markets that they want to see stronger job numbers before tapering, and the million-dollar question is whether today’s NFP will deliver the goods to the Fed’s satisfaction. If the answer is yes, we can expect renewed speculation about an imminent taper, perhaps as early as October. Conversely, a weak reading could result in the Fed delaying plans for a taper, perhaps until after the New Year.

EUR/USD Technical

• On the upside, 1.1873 remains fluid. Above, there is resistance at 1.1943
• On the downside, there is support at 1.1834 and 1.1725

GBPJPY, although having nudged over the 50-day simple moving average (SMA) at 151.85, has yet to overstep the Ichimoku cloud’s upper surface, residing between the 50-and 100-day SMAs. The 100- and 200-day SMAs are backing a positive picture, while the 50-day SMA is endorsing a phase of consolidation along with the unclear Ichimoku lines.

That said, the short-term oscillators are suggesting that bullish momentum is ahead. The strengthening MACD has neared its zero mark after pushing above its red trigger line, while the RSI is improving in bullish territory. The stochastic oscillator is maintaining a positive charge around the overbought region promoting bullish price action in the pair.

If the pair steers above the Ichimoku cloud, early resistance could commence from the 100-day SMA at 152.71 ahead of the resistance belt of 153.30-154.06. Should buyers manage to clear this ceiling relating to the recent consolidation - the price may then target the 155.14 high from around the end of June. If upside momentum persists, the resistance section between the 156.00 handle and the rally peak of February 2018 at 156.60 could come into focus.

Otherwise, if sellers drive the price below 151.85, next support could arise around 150.96, which happens to be the 23.6% Fibonacci retracement of the up leg from 134.39 until 156.06. Additional weakness may direct the pair back to the vicinity of the support base of 148.51-149.41, where the pair previously found its footing. However, if this foundation breaks down, which encapsulates the 200-day-SMA, the next obstacle to conquer could be the nearby 147.39-148.10 border.

Summarizing, GBPJPY is sustaining a positive bearing in a sideways pattern between 148.51 and 153.30. A break above 154.06 or below 148.51 could set a clear price path.

The Australian dollar rally has continued on Friday, as the currency is higher for a fourth straight day. Currently, AUD/USD is trading at 0.7430, up 0.43% on the day.

The US dollar continues to falter, and the Aussie has taken full advantage. AUD/USD has gained 1.66% this week, after sharp gains of 2.42% a week earlier. Investors have given the Australian dollar a thumbs-up and soft Australian data on Friday hasn’t put a dent in the currency’s upward movement.

Australia Retail Sales slide

Australia Retail Sales faltered badly in July, with a reading of -2.7%. The economy has been hit by the double blow of soft domestic activity and weak global demand, and there are concerns that the economy could slip into a recession. This could depend on how quickly Australia is able to contain the current wave of Covid, which has led to extensive lockdowns. Although the Covid numbers have been relatively low, the government has not hesitated to impose lockdowns, as most of the population has not been fully vaccinated.

It has been a rough week for the US dollar and the currency markets appear ready for a further dollar sell-off today. However, such a move is contingent on a soft reading from today’s nonfarm payrolls report. The consensus is around 750 thousand new jobs, and if the release is higher than expected, we could see a short squeeze on the US dollar. If the reading surprises to the downside, it could be a rough day for the greenback.

The upcoming NFP is critical as the Fed could decide on the timing of a taper based on the reading. The Fed has tied a taper to stronger employment data, and a better-than-expected read could renew speculation about an imminent taper. Conversely, a weak NFP reading will likely delay Fed plans to taper.

AUD/USD Technical

• There are resistance lines at 0.7455 and 0.7572
• 0.7377 has switched to a support role as the AUD rally continues. Below, there is support at 0.7250

It is that time of the month again!

The first Friday of the new month means the US Bureau of Labor Statistics will publish its closely-watched nonfarm payrolls report today. With Jerome Powell and several other Fed officials more or less confirming that tapering QE could start before the end of the year, investors are speculating that the US central bank may announce the timeline of the process at the FOMC’s November meeting. Until then, the Fed will have three more jobs reports to consider before publishing its plans. As such, today’s jobs report will be scrutinised very closely by the markets, and we may very well see some big moves in reaction to the data.

Now the market has had enough time to digest the Fed’s slow build up to the eventual reduction of QE. This means that tapering QE is no longer going to surprise the market, at least not in a meaningful way anyway. The Fed has also been very clear that interest rates will not necessarily rise immediately after tapering is completed.

What the markets will want to know next is not necessarily when tapering QE would commence but how fast it will be. This will be influenced directly by incoming macro data from the world’s largest economy, as well as inflation indication from around the world, such as any sharp changes in crude and gas prices, or container shipping rates etc.

NFP expectations

• Economists are expecting a headline NFP print of 750K for August, which would represent a sizeable decrease from 900K+ readings in the previous two months.
• Unemployment rate is expected to have declined to 5.2% from 5.4% previously.
• Average hourly earnings are expected to rise 0.3% month-on-month, after climbing 0.4% the month before.

NFP leading indicators

This week’s leading indicators for NFP have been mostly weaker, although the key ISM services PMI employment component will not be published until after the jobs report is out. This makes it even harder to predict the payrolls figure for this month.

• ADP 374K vs. 640K expected and 326K last
• ISM manufacturing PMI Employment: 49.0 vs. 52.9 last (-3.9)
• Jobless claims: the 4-week average of initial claims dropped to 355K from 394K last

Overall, the indicators point to weakness in employment, and so we could see a disappointment this time around. Indeed, BMO Capital Markets are not very optimistic at all on the jobs report. According to their economists: "Anecdotes for the August jobs numbers are troubling with eight negative proxies and three positive ones." If they are correct, we could see the dollar slump.

NFP trade ideas

So, if the data turns out to be very weak, then investors will probably sell the dollar hard against the likes of the euro, which has benefited from surprising strength in Eurozone data of late. Gold and silver also come to mind.

If NFP and wages data come in around expectations, then don’t expect too much movements in the markets.

However, if Friday’s employment report comes in hotter than expected, then this will further cement tapering expectations and may lead to a mild bounce for the dollar. We would favour looking for long USD/JPY trades in this scenario.

NFP webinar

Join us for a 30-minute webinar before the release of the US Non-Farm Payroll report. We will review some of the pre-NFP leading indicators to determine an estimate for headline jobs number and discuss how US dollar, gold and indices might react depending on the outcome of the jobs and wages data. We will also highlight key levels to watch and provide actionable trade ideas ahead of the NFP report. Click HERE to register.

Notes/Observations

• Focus on US payrolls and whether data supports Fed hawks on potential tapering.
• Major European Aug PMI Services data miss consensus in session (Note: coming off record high levels from recent months). Slowdown partly reflected a normalization in activity, but there widespread reports of shortages of staff and supply chain disruptions.
• Japan PM Suga to step down after heading the country for just one year.

Asia

• China Aug Caixin PMI Services registered its 1st contraction in 16 months (46.7 v 52.0e).
• Australia Aug Final PMI Services confirmed its 2nd month of contraction and lowest since June 2020 (42.9 v 43.3 prelim.
• Japan Aug Final PMI Services confirmed its 19th month of contraction and lowest since May 2020 (42.9 v 43.5 prelim).
• Japan PM Suga confirmed he would not run for LDP Leadership.

Europe

• UK PM Johnson expected to announce manifesto-breaking tax increase to fund largest overhaul in social care. To reveal plan to raise national insurance that will see approximately 25M people pay extra tax. Plan called for a 1% rise in National Insurance in return PM would promise to cap the amount an individual will ever pay in social care costs.
• Health Sec Javid said to have pushed in the summer for a 2% increase in National Insurance during a cabinet split over funding for the NHS/social care. Chancellor Sunak is arguing against a more than 1% increase
• German ZDF Poll on Sept elections: SPD moves ahead Merkel's bloc. SPD: 25% (+3) while Merkel CDU/CSU bloc: 22% (unch).

Americas

• Sen Manchin (D-WV) stated that Senate should hit 'pause' on the $3.5T spending plan as concerned by inflation and debt accumulation.

Speakers/Fixed income/FX/Commodities/Erratum

Equities

• Indices [Stoxx600 -0.08% at 474.20, FTSE +0.16% at 7,175.55, DAX +0.07% at 15,852.05, CAC-40 -0.27% at 6,744.58, IBEX-35 -0.17% at 8,966.00, FTSE MIB +0.05% at 26,245.50, SMI -0.20% at 12,407.06, S&P 500 Futures +0.16%].
• Market Focal Points/Key Themes: European indices open modestly lower and later traded mixed wit a downward bias; general muted trading ahead of data releases, long weekend in US; better performing sectors inclue industrials and real estate; sectors inclined to the downside include consumer discretionary and technology; Watchstone rejects offer from Polygon; DSM acquires First Choice Ingredients; reportedly Italian regulators to probe Nexi-SIA merger; reportedly Zooplus in talks for takeover by EQT; Cinven disists in talks to acquire Sanne Group; HAL takes stake in Technip Energies; focus on US NFP release later today; no major earnings expected in the upcoming Americas session.

Equities

• Consumer discretionary: Delivery Hero [DHER.DE] -1.5% (convertibles offering).
• Financials: Ashmore [ASHM.UK] -4% (earnings), Berkeley Group [BKG.UK] -1% (AGM statement).
• Healthcare: Astrazeneca [AZN.UK] +1% (settlement with EU).
• Industrials: Webuild [WBD.IT] +2% (contract), Eurocell [ECEL.UK] +4% (earnings).

Speakers

• EU's Dombrovskis (trade chief): optimistic of resolving steel tariff dispute after EU/US summit by year end.
• China PBoC Financial Stability Report reiterated stance to make prudent monetary policy flexible, targeted and appropriate. To improve financial risk prevention, warning, disposal and responsibility system.

Currencies/Fixed income

• USD continued to be on the defensive following the dovish signals from the Fed Chair Powell at last week’s Jackson Hole symposium. Greenback at 1-month lows by mid-session against the major European and commodity-related pairs. Focus on upcoming US payrolls in today’s session to determine whether data supported Fed hawks recent rhetoric on potential tapering.
• EUR/USD at 1.1880. Dealers noted could the potential that the ECB could scale back its pandemic bond purchases at next week’s meeting providing additional support to the Euro.

Economic data

• (RU) Russia Aug PMI Services: 49.3 v 53.5e (1st contraction in 8 months); PMI Composite: 48.2 v 51.7 prior.
• (SE) Sweden Aug PMI Services: 64.7 v 69.1 prior (15th month of expansion); PMI Composite: 63.4 v 67.8 prior.
• (FR) France July YTD Budget Balance: -€166.6B v -€131.3B prior.
• (TR) Turkey Aug CPI M/M: 1.1% v 0.7%e; Y/Y: 19.3% v 18.8%e; CPI Core Index Y/Y: 16.8% v 17.0%e.
• (TR) Turkey Aug PPI M/M: 2.8% v 2.5% prior; Y/Y: 45.5% v 44.9% prior.
• (CZ) Czech Q2 Average Real Monthly Wage Y/Y: 8.2% v 5.7%e.
• (HU) Hungary July Retail Sales Y/Y: 3.0% v 3.5%e.
• (ES) Spain Aug PMI Services: 60.1 v 61.5e (5th month of expansion); PMI Composite: 60.6 v 60.6e.
• (ZA) South Africa Aug PMI (whole economy): 49.9 v 49.0e (2nd straight contraction).
• (SE) Sweden Q2 Current Account (SEK): 80.2B v 74.5B prior.
• (TH) Thailand end-Aug Foreign Reserves: $250.8B v $248.0B prior.
• (CN) Weekly Shanghai copper inventories (SHFE): 69,3K v 82.4K tons prior.
• (IT) Italy Aug PMI Services: 58.0 v 58.5e (4th month of expansion); PMI Composite: 59.1 v 58.9e.
• (FR) France Aug Final PMI Services: 56.3 v 56.4e (confirmed 5th straight expansion); PMI Composite: 55.9 v 55.9e.
• (DE) Germany Aug Final PMI Services: 60.8 v 61.5e (confirmed 4th month of expansion); PMI Composite: 60.0 v 60.6e.
• (EU) Euro Zone Aug Final PMI Services: 59.0 v 59.7e (confirmed 5th month of expansion); PMI Composite: 59.0 v 59.5e.
• (RU) Russia Narrow Money Supply w/e Aug 27th (RUB): 14.24T v 14.34T prior.
• (NO) Norway Aug Unemployment Rate: 2.7% v 2.9%e.
• (UK) Aug Final PMI Services: 55.0 v 55.5e (confirmed 6th month of expansion); PMI Composite: 54.8 v 55.3e.
• (UK) Aug Official Reserves Change: -0.6$B v +$1.0B prior.
• (EU) Euro Zone July Retail Sales M/M: -2.3% v 0.0%e; Y/Y: 3.1% v 4.5%e.
• (NO) Norway Aug House Prices M/M: +1.9% v -1.1% prior; Y/Y: 9.4% v 8.5% prior.

Fixed income issuance

• None seen.

Looking ahead

• Portugal Debt Agency (IGCP) to announce upcoming issuance.
• (EG) Egypt Aug Gross Official Reserves: No est v $40.5B prior.
• 05:25 (EU) Daily ECB Liquidity Stats.
• 05:30 (IN) India to sell combined INR260B I 2023, 2031 and 2061 bonds.
• 05:30 (ZA) South Africa to sell combined ZAR1.2B in I/L 2033, 2038 and 2046 Bonds.
• 06:00 (IE) Ireland Aug Live Register Monthly Change: No est v -2.2K prior; Live Register Level: No est v 169.5K prior.
• 06:00 (UK) DMO to sell £3.0B in 1-month, 3-month and 6-month bills (£0.5B, £1.0B and £1.5B respectively).
• 06:45 (US) Daily Libor Fixing.
• 07:00 (IN) India announces upcoming bill issuance (held on Wed).
• 07:30 (IN) India Weekly Forex Reserve w/e Aug 27th: No est v $616.9B prior.
• 07:30 (IS) Iceland to sell Apr 2024 RIKB Bonds.
• 08:00 (UK) Daily Baltic Dry Bulk Index.
• 08:30 (US) Aug Change in Nonfarm Payrolls: +725Ke v +943K prior; Change in Private Payrolls: +610Ke v +703K prior; Change in Manufacturing Payrolls : +23Ke v +27K prior.
• 08:30 (US) Aug Unemployment Rate: 5.2%e v 5.4% prior; Underemployment Rate: No est v 9.2% prior; Labor Force Participation Rate: 61.8%ev 61.7% prior.
• 08:30 (US) Aug Average Hourly Earnings M/M: 0.3%e v 0.4% prior; Y/Y: 4.0%e v 4.0% prior; Average Weekly Hours: 34.8e v 34.8 prior.
• 08:30 (CA) Canada Q2 Labor Productivity Q/Q: +1.6%e v -1.7% prior.
• 09:00 (BR) Brazil PMI Services: No est v 54.4 prior; PMI Composite: No est v 55.2 prior.
• 09:45 (US) Aug Final Markit PMI Services: 55.2e v 55.2 prelim; PMI Composite: No est v 55.4 prelim.
• 10:00 (US) Aug ISM Services Index: 61.8e v 64.1 prior.
• 11:00 (EU) Potential sovereign ratings after European close (Moody’s on Spain, Estonia, Hungary sovereign ratings; S&P on Finland and Cyprus sovereign ratings; Fitch on Estonia, Lithuania sovereign ratings; Canadian rating agency DBRS on Spain and Estonia sovereign ratings).
• 13:00 (US) Weekly Baker Hughes Rig Count.
• 13:00 (US) Fed’s Bostic.

Cable is consolidating round pivotal Fibo barrier at 1.3837 in European trading on Friday, following Thursday’s 0.46% advance and awaiting US labor data for fresh signal.

Near-term structure firmed after Thursday’s lift above three-day congestion and close above converged 30/55/200DMA’s, but bulls need clear break above 1.3837 pivot to resume towards targets at 1.3893 / 1.3920 (Fibo 76.4% of 1.3893/1.3920 / 100DMA).

Rising 14-d momentum is about emerge into positive territory and additionally support the action, as MA’s turned to bullish setup and underpin.

US jobs data are likely to define pair’s near-term direction, with upbeat results to boost expectations for Fed tapering and lift dollar that would send sterling lower.

The second scenario (solid jobs data around forecast that would confirm stable recovery in the US labor sector but would signal tapering on hold), is favored among economists and would keep the dollar under pressure.

Finally, August NFP figure well below forecast would signal a substantial slowdown in the labor sector’s recovery and warn of economic stagnation that would hurt risk appetite and prompt traders into safe-haven dollar.

Broken 30/200DMA’s offer initial support at 1.3811, followed by broken Fibo 50% at 1.3792 and converging 20/10DMA’s (1.3770/61) which mark pivotal support, loss of which will be bearish.

Res: 1.3846, 1.3878, 1.3893, 1.3920.
Sup: 1.3811, 1.3792, 1.3761, 1.3731.

The previously assumed-to-be sideways trading of the yellow metal has been slowly decreasing volatility. Moreover, by inspecting the hourly candle chart, a triangle pattern has been spotted. In theory, all trading in a triangle pattern eventually ends with a break out either to the upside or downwards.

In the case that the rate breaks out up, it would face the resistance of the 1,820.00 level. Afterwards, the August high zone at 1,830.00/1,835.00 could provide resistance.

A breaking out of the triangle downwards would aim at the 1,800.00 level, which has been acting both as resistance and support. Below the 1,800.00, other round price levels might provide support.

Since the middle of Wednesday's trading, the USD/JPY has continued to trade sideways around the 110.00 level. However, up to the start of Friday's trading, the rate was finding support in the 200-hour simple moving average. On Friday, the rate shortly traded below the SMA indicating that it might not continue to provide support.

In the case the USD/JPY currency exchange rate surges, it would first face the resistance of the 55-hour simple moving average at 110.05 and the 110.10 level. Above these levels, the rate could aim at the 110.40 level, which stopped the September 1 surge.

However, a decline of the rate would look for support in the 200-hour simple moving average and the weekly simple pivot point at 109.86. If these levels fail to provide support, the USD/JPY might reach for the August 31 low level at 109.60.

The GBP/USD currency exchange rate managed to pass the resistance of the 1.3800 level. It resulted in a sharp surge, which stopped, as it approached the 1.3850 mark. Afterwards, the GBP consolidated its gains against the US Dollar by retracing down. On Friday morning, the decline found support in the weekly R1 simple pivot point at 1.3826.

If the pair resumes its surge, it could aim at the resistance cluster that surround the 1.3880 level. The zone consists of the mid-August high levels and the weekly R2 simple pivot point. However, note that the pair would have to first pass the 1.3850 level.

On the other hand, a potential decline of the currency exchange rate would first need to pass the weekly R1 simple pivot point. Afterwards, the 55-hour simple moving average could provide support at 1.3795. Below it, the 100-hour simple moving average at 1.3780 could keep the rate up.

On Thursday, the EUR/USD currency exchange rate found support in the weekly R1 simple pivot point at the 1.1837 level. It resulted in a surge. The surge initially respected the upper trend line of a channel up pattern and the weekly R2 simple pivot point's resistance. However, on Friday morning the pair shortly pierced the trend line before returning to trade just above the weekly R2 simple pivot point.

If the sideways trading is replaced with a surge, the EUR/USD could surge up to the 1.1900 mark. However, note that the upper trend line of the channel up pattern could provide resistance and slow down the pair. Above the 1.1900, the most close by technical resistance level was the weekly R3 simple pivot point at 1.1947.

Meanwhile, the rate could continue to fluctuate sideways above the weekly R2 simple pivot point or decline. A potential decline would look for support in the 55-hour simple moving average and the 1.1850 level. Below these levels the weekly R1 simple pivot point at 1.1837 and the 100-hour simple moving average at 1.1830 could provide support.