Weak US Jobs Cement FOMC QE3 Expectations

Stocks surged on the back of enthusiasm for the ECB Bond Buying plan and growing expectations that the US FOMC meeting Wednesday will deliver QE3. August Jobs came in at 96k vs. 125k. August Unemployment Rate dropped to 8.1% vs. 8.3% as the participation rate dropped in the US. The perverse reaction of weak data leading to stock market gains increases the downside risk if Bernanke fails to deliver. Looking ahead, July Consumer Credit forecast at 9.05bn vs. 6.46bnn previously.

The Euro (EUR)
The euro surged as shorts were run over as we shot to 1.2800 from lower 1.2650 after the US Jobs data. The outlook is mixed with some very big risk events coming up in the Greece Troika report and the German constitutional court decision on the ESM. Successful completion of both events and QE3 announced on Wednesday may see the EUR/USD test 1.3000.

The Sterling (GBP)
The GBP/USD broke above 1.6000 but failed to keep up with the EUR/USD which meant the EUR/GBP leapt to 0.8000. The Pound has been enjoying a nice uptrend recently and we could see this continue as long as risk appetite remains upbeat. Looking ahead, September EU Sentix forecast at -30.7 vs. 30.3 previously.

The Japanese Yen (JPY)
USD/JPY was crunched lower immediately after the US jobs missed and we saw follow on selling to Y78.20 lows. The Y78-80 range has held for months so there is substantial support at the figure and large stops just below. The FOMC meeting on Thursday may be the catalyst for a serious test lower later in the week.

Australian Dollar (AUD)
The AUD/USD fortunes improved greatly on Friday with the market caught short after weak local economic data. The weak US dollar and soaring gold help lift the AUD/USD above 1.0300 to 1.0400 highs by the close. Some weak Chinese data over the weekend has led to some slight selling so far in Asia but nothing aggressive yet. The AUD/USD remains firsts and foremost a risk currency so day to day movement in stock markets will dictate the direction and trend. UPDATE China August Trade Balance 26.6bn vs. 19.8bn forecast. Imports -2.6% vs. 3.5% forecast.

Oil And Gold (XAU)
Gold jumped over $40oz after weak US jobs data cemented QE3 expectations. Anything but QE3 will greatly disappoint the bulls prompt a sharp pullback. OIL/USD rallied with US stocks and risk appetite to $96 a barrel. A break of $98 may lead to the key $100 being tested in the short term.

Pairs To Watch
EUR/USD: 1.3000 on the cards as rebound continues?

XAU/USD: Volatile assured as risk events line up this week.

TECHNICAL COMMENTARY