FX Update: Well that didn’t take long. FX Update: Well that didn’t take long. FX Update: Well that didn’t take long.

FX Update: Well that didn’t take long.

Forex 3 minutes to read
John Hardy

Head of FX Strategy

Summary:  Markets tried to dramatically extend the relief rally yesterday as the US debt ceiling issue has cleared up for now and on the hope that the energy price crisis will fade, but then crude oil prices rushed back toward the highs and US yields rose to new local highs. Cue the US September jobs report later today, which could drive a fresh bout of USD strength if solid payrolls growth, and further signs of rising wage pressures, drive an additional boost US treasury yields out the curve.


FX Trading focus: Well that didn’t take long. US jobs report on tap.

The “goldilocks” idea I floated yesterday only lasted a matter of hours, as the relief from the natural gas price reversal in Europe only spread into crude oil prices briefly before the latter ripped back toward the cycle highs. Further capping risk sentiment was a sharp rise in US treasury yields, which rose to new local highs ahead of today’s important jobs report. The boost to US yields saw the JPY falling fast. No big surprise there, as USDJPY trades into 112.00 again and may be ready for a sprint higher into the next major chart zone toward 114.50 if we get a potent jobs report that sets yields on the path to challenge the cycle highs (for example, the 1.75% area in the US 10-year).

As noted in this morning’s Saxo Market Call podcast, I will focus closely on the average hourly earnings data in today’s report after the last several months have shown elevated readings suggesting that earnings are rising at a greater than 5% clip. Any nonfarm payrolls change reading well north of the expected 500k plus an Average Hourly Earnings reading higher than 0.4% month-on-month today without an accompanying drop in the average weekly hours could add some urgency to the Fed’s tapering decision and pace at the early November meeting. The latest FOMC minutes are up next week and should add some further color on the state of Fed thinking heading into this jobs report.

It's an important day and close to the week for the US dollar, which has faltered in places even while maintaining the EURUSD downtrend and seeing USDJPY tickling the top of the range today. USDCAD is in an entirely different place as it pushed lower toward the critical 1.2500 area on the oil price rise, AUDUSD continues to eye pivotal local resistance at 0.7300 and GBPUSD the significant resistance zone in the 1.3600-50 area. If the data is indifferent relative to expectations and yields trade sideways or lower and risk sentiment continues to recover, the US dollar could be in for a significant breakdown versus the stronger batch of currencies. A jolt higher in US yields is the more interesting test of USD sentiment however – likely supporting further upside in USDJPY but perhaps only upside against the other currencies noted above if the higher yields spook risk sentiment at the same time. I will follow up early next week.

Chart: USDJPY weekly
Further upside is the logical scenario here if we get a strong US jobs report today that drives a further boost in yields. As noted above, the next key area for USDJPY is up into the 114.50. A terrible jobs report today and sudden cratering in yields would likely be needed if the USDJPY is to be tamed within the prior range.

Source: Saxo Group

Table: FX Board of G10 and CNH trend evolution and strength
As noted above, the US data today is interesting for whether the US dollar can establish a broader direction, as the current poles at the moment are the EUR, SEK and JPY on the weak side and the oil currencies on the strong side.

Source: Bloomberg and Saxo Group

Table: FX Board Trend Scoreboard for individual pairs
Quite a number of USD pairs are poking into key levels beyond which the USD breaks down – AUDUSD has already flipped positive according to the FX Board trend logic, but the chart needs a hold into the weekly close above 0.7300. Elsewhere, note that even the heavily pressured NZD this week is trying to flip back higher versus the JPY as yields rise anew.

Source: Bloomberg and Saxo Group

Upcoming Economic Calendar Highlights (all times GMT)

  • 1100 – UK Bank of England Quarterly Bulletin
  • 1205 – US Secretary of Treasury Yellen, ECB President Lagarde speak at B20 event in Italy
  • 1230 – US Sep. Change in Nonfarm Payrolls
  • 1230 – US Sep. Unemployment Rate
  • 1230 – US Sep. Average Hourly Earnings
  • 1230 – Canada Sep. Net Change in Employment / Unemployment Rate
  • 1300 – ECB's Panetta to Speak
Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)
- Full disclaimer (https://www.home.saxo/en-mena/legal/disclaimer/saxo-disclaimer)


Boulevard Plaza, Tower 1, 30th floor, office 3002
Downtown, P.O. Box 33641 Dubai, UAE

Contact Saxo

Select region

UAE
UAE

Trade responsibly
All trading carries risk. Read more. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more

Saxo Bank A/S is licensed by the Danish Financial Supervisory Authority and operates in the UAE under a representative office license issued by the Central bank of the UAE.

The content and material made available on this website and the linked sites are provided by Saxo Bank A/S. It is the sole responsibility of the recipient to ascertain the terms of and comply with any local laws or regulation to which they are subject.

The UAE Representative Office of Saxo Bank A/S markets the Saxo Bank A/S trading platform and the products offered by Saxo Bank A/S.