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Bullish USD Fires Keep Burning

Bullish USD Fires Keep Burning

The months are starting to feel shorter now as we head into the final stretch of the year and already it is once again NFP time.

Last month we saw analyst expectations of 220k sorely disappointed as the number came in well below at 173k leaving USD bulls underwhelmed heading into the keenly anticipated September FOMC. With the September meeting having passed without an increase in US interest rate and without any clearer guidance as to when such an increase might occur, USD bulls are still feeling underwhelmed.

Though the FOMC meeting itself saw the Fed striking a decidedly Dovish tone, comments made since by Fed members and indeed Fed chair Yellen herself, have reiterated both the Fed’s commitment and desire to raise rates this year, keeping the bullish USD fires burning.

US Nonfarm Payrolls

Heading into this month’s number there certainly feels far less focus upon the data with the Fed having clarified at the September FOMC meeting that although data dependant, the decision to raise rates does not hinge on any single data set. With such a low print last month and low expectation heading into the number, it feels like the risks are skewed more to the upside and a positive surprise.

It is important to note however just how much job growth has slowed this year. The six month moving average has declined to to 205k in August from 282k in February and with the US labour market moving back towards “full employment” it is feasible to expect less job growth month on month.

Lets take a look at some possible outcomes and trading opportunities.

  • 225k And Over – Buy USD/JPY

With anticipation growing over the likelihood of further BOJ easing and with JPY short positioning currently near multi-year lows, there is plenty of scope for USD/JPY to see some upside trajectory on the back of the number in this range, which would no doubt encourage enthusiasm once again for a Fed rate hike heading into the October FOMC with current pricing suggesting only an 11% probability of a rate hike.

Currently still trapped within the tight triangular range formed following the spike lower on August 24th, a move higher from these levels would see a retest of the broken bullish trend line as an initial target.

USD/JPY Chart

  • Around 200k – Buy USD/CAD

A print around the expectation level should see firm USD trading on the back of the release with traders relieved to see a positive print. For those players anticipating an October lift off a print in this region will be reassuring.

USD/CAD remains firmly within its bullish trend and with retail markets still so short the pair, there is further room to the upside here with a move higher into overhead trend line resistance around 1.35 the next target in the move.

USD/CAD Daily Chart

  • 190k And Lower – Sell Strength In AUD/USD & NZD/USD

If we see another miss this month which would be the sixth time the September NFPs have undershot expectation in the last 9 series, we can expect to see USD sharply lower endorsing the view of many that the US economy is not yet ready for a rate hike and that conditions are still tentative.

A softer USD would be overdue comfort to AUD/USD which has been under sustained pressure in recent months. Whilst still firmly within its bearish trends amidst a backdrop of commodity weakness and global growth concerns fuelled by the China slow down, a spike higher in the Aussie should pave the way for better short entries to continued weakness medium term. Plenty of strong trend line and horizontal resistance overhead to set short into.

AUD/USD Daily Chart

  • 175k And Lower – Buy NZD/USD

The kiwi looks to be carving out a short term base currently having failed to break down beyond the August 24th low and having just broken up through the descending trend line resistance that has capped price since May. Dairy prices have rebounded over the last month supporting NZD at these levels an acute USD weakness here would pave the way for a deeper correction if the key local resistance level is cleared.

NZD/USD Daily Chart

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