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The Nasdaq 100 holds onto the high ground as investors ponder how the labor data may affect the QE.

The index is looking to extend gains from the all-time high of 15700. Nonetheless, sentiment remains bullish with signs of overextension.

An RSI bearish divergence is a heads-up that a correction might be due. A break below 15520 may pull the trigger and 15300 on the 20-day moving average would be an important support.

On the upside, 15800 would be the immediate target if the bulls can keep up with the momentum.

Bullions await a breakout as Treasury yields stabilize going into today’s high-impact jobs report.

Silver’s recovery above the psychological level of 24.00 has attracted more buying interest. However, the price has met resistance at the supply zone near 24.35, which coincides with the 30-day moving average.

A bullish breakout would trigger an extended rally as sellers rush to cover. Then 25.00 would be the next target.

However, a plunge below 23.80 may cause a correction towards the daily support at 23.00.

The US dollar consolidates as traders reposition themselves ahead of nonfarm payrolls.

The pair has been changing hands in a narrow range between 0.9100 and 0.9200. Multiple attempts at both ends suggest a lack of commitment.

A catalyst-driven breakout would dictate the direction for the days to come. A rally would test the recent peak at 0.9240, a prerequisite for a reversal above 0.9300.

On the downside, a sell-off may dampen optimism and lead to a retest of the demand zone at 0.9050.

Powell's speech a week ago, although it did not generate a strong market reaction, did change risk sentiment amongst traders. Today's NFP publication could put the dollar back into a long-term down-trend or revive interest in it.

In August, technical analysis was increasingly pointing to a break of the last-year downtrend and an upward breakthrough from consolidation.

But it seems that now is the case that the fundamentals have been stronger. While Powell's speech did not cause any turbulence in the markets, central bankers have perfectly learned to speak boring but shift the emphasis in the direction they want.

In the outgoing week, we have seen a return of outperformance in risk assets, with the high-tech Nasdaq leading among US equity indices and high-yield securities in bonds.

Buoyed by assurances that the Fed will not rush to raise rates and is not concerned about inflation, news slightly higher than expected did not cause a pull into the dollar and a reassessment of rate expectations.

On average, market analysts expect the official report to show employment growth of 750k in August compared to 943k the month before. A violent dollar reaction is only to be expected if robust labour market indicators above 1 million are released. Such an outcome would sharply increase the chances that later this September, the Fed will start tapering QE with a potentially high speed. Moreover, a rate hike in the middle of next year again becomes a realistic scenario.

However, early labour market indicators, from ADP and ISM employment components to weekly jobless claims, are setting up more modest expectations of 400-700K job growth, which promises to be bad news for the dollar, confirming the downtrend towards major competitors, most of which are taking a more hawkish approach to fight inflation.

Markets

Global trading yesterday followed a logical wait-and-see script ahead of today's US payrolls that are supposed to bring a hint whether conditions are ripe for the Fed to start tapering bond purchases. Data (higher-than-expected EMU PPI at 12.1%) and slightly better-than-consensus weekly US jobless claims (340k) were not able to inspire any directional market moves. The rise earlier this week in especially European yields, remained on hold. The US yield curve flattened slightly with long term yields (30-y) declining up to 1.4 bp. German yields eased in a similar fashion. On FX markets, USD caution prevailed. The DXY TW index dropped further below the 92.47 support/neckline (close 92.23). EUR/USD continued its 2-week uptrend (close 1.1875). A persisted mild risk-on context again caused USD/JPY to decouple from this USD downtrend. The pair is going nowhere in the 110 area. With little in the way of high profile UK news EUR/GBP again challenged the 0.86 barrier, but for now the test failed (close 0.8585). Equities maintained the slow, but protracted uptrend with new all-time record levels for the S&P500 and the Nasdaq.

This morning, two topics are capturing Asian traders' attention. After the manufacturing gauge on Wednesday, the Chinese Caixin services PMI also tumbled far into contraction territory (46.7 from 54.9), dragging the composite measure to 47.2. The yuan weakens slightly (USD/CNY 6.4595). In Japan, PM Suga announced he will not lead the LDP at the upcoming election (cf infra). A local risk-on slightly weakened the yen with USD/JPY returning north of 110.

All eyes are on US payrolls. Key question is whether job growth will be strong enough for Fed Chair Powell (and a majority in the MPC) to conclude that, next to inflation, employment also fulfills the test of ‘substantial further progress' needed to start tapering of bond purchases. We think that the Fed is very close to announce a reduction at the September meeting. However, after Powell's cautious Jackson Hole speech, markets aren't convinced yet, putting US yields in a holding pattern. In this context, markets probably need a (very) strong payrolls report (consensus 725K) to trigger a new uptrend in yields and to reverse recent USD-correction. Recent survey evidence indicated ongoing disruptions in the hiring process (mismatch between supply and demand). So, a big payrolls beat maybe isn't that evident. If so, the US 10-y yield might hold its consolidation pattern with the 1.37% range top remaining a tough resistance short-term. In such a scenario, the USD correction might also continue. For the DXY TW index, next support comes in at 91.78 (end July correction low). The comparable level for EUR/USD stands at 1.1909, with 1.1975 next reference in case of a break. Even in case of a rather soft US payrolls report, we expect fairly solid downside protection for German/EMU yields ahead of next week's ECB meeting.

News headlines

The EU still has not approved Poland's (and Hungary's) request for almost €24bn in EU grants and another €12bn in loans under the NextGen recovery initiative, even though the two-month deadline to do so has passed. A judicial overhaul has brought Poland at a collision course with the EU with the latter ordering some elements of the reform to be suspended. Poland's finance minister said the stand-off should be decoupled from the financing but that it wasn't affecting spending plans yet as Warsaw was already “building the virtual infrastructure for the projects”. In a separate report, Poland's Supreme Court again failed to provide guidance to Polish banks over how to deal with the lawsuits over some $26bn of non-zloty home loans. The tribunal has now asked the EU's top court to help it resolve the issue. It's the fourth delay already this year, caused by the lack of cooperation between judges appointed before and after the judicial reforms.

Japan's PM Suga is planning to resign and that he won't run for leader of the ruling Liberal Democratic Party later this month. Suga said he cannot both deal with the coronavirus while campaigning for the election. Suga's approval ratings have plummeted since he took over from Abe in September 2020 over corruption scandals, controversies around the Olympics and a sluggish response to Covid. Foreign minister Kishida already said he's up for the leadership contest, the only one for now to have publicly announced to do so. He vowed to spend more to tackle the virus. Japanese stock markets propel almost 2% higher after the news got out. Local risk-on hurts the yen.

Daily Pivots: (S1) 151.57; (P) 151.89; (R1) 152.42; More...

Intraday bias in GBP/JPY stays mildly on the upside for 153.42 resistance. Firm break there will argue that whole corrective pattern from 156.05 has completed, and bring retest of this high. On the downside, however, below 151.32 minor support will turn bias back to the downside for 149.16 support and below.

In the bigger picture, rise from 123.94 is seen as the third leg of the pattern from 122.75 (2016 low). As long as 149.03 support holds, such rise would still resume at a later stage. However, sustained break of 149.03 support will indicate rejection by 156.59. Fall from 156.05 would be at least correcting the whole rise from 123.94. Deeper fall would be seen back 38.2% retracement of 123.94 to 156.05 at 143.78 first.

Daily Pivots: (S1) 130.28; (P) 130.44; (R1) 130.71; More....

EUR/JPY's break of 130.54 resistance argues that correction from 134.11 has already completed at 127.91. Intraday bias stays on the upside for 132.68 resistance first. Break there will bring retest of 134.11 high. On the downside, below 130.11 minor support will turn bias neutral and bring retreat first.

In the bigger picture, rise from 114.42 is seen as a medium term rising leg inside a long term sideway pattern. As long as 127.07 resistance turned support holds, further rise is still expected to retest 137.49 (2018 high). However, firm break of 127.07 will argue that the medium term trend has reversed, deeper fall would be seen to 61.8% retracement of 114.42 to 134.11 at 121.94.

Technical analysis

The RSI is above 50

The MACD is below 0 with an indicator pointing up.

Most likely scenario - BUY

Target prices: 1,815.59 1,820.37

Alternative scenario - SELL

Target prices: 1,807.16 1,800.65

Key levels

Support 1,807.16 1,800.65

Resistance 1,815.59 1,820.37

Daily Pivots: (S1) 0.8573; (P) 0.8587; (R1) 0.8597; More...

No change in EUR/GBP's outlook as further rise still in favor with 0.8541 support intact. Rise form 0.8448 would target 0.8668 resistance. Decisive break there will be a strong sign of near term bullish reversal at least. Further rally would be seen to 0.8861 support turned resistance. On the downside, however, break of 0.8534 will turn bias back to the downside for retesting 0.8448 low instead.

In the bigger picture, price actions from 0.9499 (2020 high) are still seen as developing into a corrective pattern. Deeper fall could be seen as long as 0.8668 resistance holds, towards long term support at 0.8276. However, firm break of 0.8668 resistance would argue that a medium term bottom was already formed. Stronger rise would be seen to 0.8861 support turned resistance to confirm completion of the corrective pattern.

The euro uptrend continued in the overnight session as investors and bond markets signalled that the European Central Bank (ECB) will likely hint at tapering in the upcoming meeting. The currency rose to the highest level in almost a month against the US dollar as the bond spread between the 10-year German and Italian bond widened. The benchmark German 10-year spread also jumped to the highest level in almost a month. This trend accelerated after data showed that the bloc’s consumer inflation jumped to 3.0% in August.

US stocks maintained the bullish momentum on Thursday after strong US exports and initial jobless claims numbers. The S&P 500 jumped to another record and moved above the $4,550 resistance level. This rally happened after data by the Labor Department showed that initial jobless claims declined by 14.000 last week to 340,000. That was the lowest level since the pandemic started last year. At the same time, the country’s exports rose while imports declined in July. As a result, the trade surplus declined by 4.3% from June to $70.1 billion. A drop in imports happened as demand for items like toys and sporting goods declined.

The US dollar was under pressure in the overnight session as investors refocused on the non-farm payroll numbers scheduled for later today. Analysts expect the data to show that the economy added more than 750k jobs in August after adding more than 943k in the previous month. This forecast could fall short judging by the weak data published by ADP on Wednesday. The unemployment rate is expected to drop while wages are expected to rise by 4.0%. The currency will also react to the ISM non-manufacturing PMI, which is an important gauge considering that sector is the biggest employer in the country.

EURUSD

The 30-minute chart shows that the EURUSD pair has been in a strong bullish trend in the past few days. As a result, the pair has managed to move above the short and longer-term moving averages. It also rose above the ascending trendline that connects the lowest levels since the final week of August. The pair is also above the Ichimoku cloud. Therefore, the bullish momentum will likely continue, with the next level to watch being at 1.1950.

GBPUSD

The GBPUSD pair also continued the bullish momentum as the US dollar weakness continued. The pair rose to a high of 1.3836, which was the highest level since August 16. On the hourly chart, the pair is along the upper line of the ascending channel shown in green. It is also being supported by the 25-day moving average while the Relative Strength Index (RSI) has also rallied. Therefore, the pair may keep rising as bulls target the key resistance at 1.3900. However, a short pullback cannot be ruled out.

US30

The Dow Jones index was little changed in the overnight session as US stocks maintained their bullish trend. The index is trading at $35,380. The daily chart shows that the index upward momentum has waned in the past few days. Still, it is being supported by the short and longer-term moving averages. It is also slightly above the ascending trendline. Therefore, the pair may keep rising as bulls target the key resistance at $36,000.