Today is an important day with the NFP. While there obviously is an expectation for a specific number (164K this month), it is important also if the unemployment rate also drops to 4.9% as is expected. This is the last NFP before the FED will decide whether or not to raise the interest rate later this month, so a good number is likely to make the case for a further hike stronger. Weak data could cause some officials to be more cautious and as a result opt to wait a little bit more.
One factor that has to be taken into consideration is that together with the NFP there is a lot of other data released as well, the participation rate and wage growth (average hourly earnings). Another point to look out for are revisions of last month’s number. Sometimes there can be quite a large revision of the data of the previous month, which in turn can have a considerable effect as well, usually as a bit of a belated reaction as the main focus naturally is on the new number.
The trading pattern we usually see a large move, then a small retracement, and then a continuation of the initial move.
Currencies
EUR/USD – moved down after having reached the resistance around the 1.12 level as the ECB did not change its policy, which was expected, but the outlook, mainly the inflation outlook, was less positive than was expected. A strong or weak NFP could bring us out of the range we have been trading lately between roughly the 1.12 and the 1.11 levels.
USD/JPY – is dropping for a 4th straight day after having failed to base itself above the resistance just below the 111 level. There is some support to be found around the 108.4 level but as with almost everything, we will be waiting for the NFP for a clear direction.
GBP/USD – continues to decline amid more and more uncertainty on whether a Brexit will take place or not. We are close to breaking below the 1.44 level again as we await the services PMI out of the UK this morning, and obviously the NFP this afternoon.
Indices
Dollar Index – is moving down a little bit as we await the NFP data later today. Several FED officials have mentioned that not only the state of the US economy is what will determine whether or not the FED will raise the interest rate, but also the Brexit vote will influence the decision.
S&P 500 – is once again trading around the resistance at the 2100 level. We will wait to see if we have enough strength to really base itself above this level. A lot will obviously depend on the NFP as that is what will drive the markets today.
Commodities
Gold – remains under a lot of pressure with the anticipated rate hike later this month, but with the NFP coming up we can expect a lot of volatility, especially if we see a large miss on the number. The question is how much a strong NFP will cause gold to drop, as the drop in recent weeks is already due to an expected rate hike this month.
Oil – saw a very volatile session yesterday as was to be expected, although not as volatile as usually in the aftermath of an OPEC meeting, as nothing new or surprising came out of it. We moved up to again to test the resistance multiple times, but the first time yesterday came in the morning as there was some indication that perhaps a new production ceiling would be agreed upon. However, when it became apparent that no agreement has been reached, we saw oil drop quickly to just below the 48 level. This was right before the inventories which showed a lower drawdown than expected, but it did not show a build as the crude stock of the previous day, and as such oil corrected upwards again towards the resistance.
By Shawn Koopman