US dollar strengthens as markets await non farm payrolls tonight

September 6, 2013

Markets are going to be focused on non farm payrolls tonight and you can see that in the price action of US treasuries and other interest rate markets and in the strength that the US dollar showed across the board overnight.

Before I get to that though it is worth noting that the G20 meeting has begun in St Petersberg and the frostiness between the US and Russia and the tough language each is using on the other  speaks volumes for the grey swan risk for markets that could come from a US strike on Syria. A strike is not a done deal by any stretch of the imagination if the musing of congressmen can be taken at face value, but Gold back at $1370 belies the risk that even a limited strike could have in terms of retaliation from so many quarters.

Just something for traders to keep an eye on.

But markets overnight were focused on the Bank of England and the ECB’s commitment to keeping rates low with the Euro in particular coming under pressure from ECB President Draghi’s commitment to lower rates for an extended period saw the single currency under pressure falling to a low at 1.3109 for a fall of 0.67% this morning as it sits at 1.3117.  GBP (1.5587) fell 0.24% and the Yen (USDJPY, 100.13) weakened further above 100.

As you can see in the chart above if EURO breaks the 50% fibo support at 1.31 then it could slip back another 100 points and if 1.30 breaks then its into the 1.27’s. Non-farm payrolls is a huge event risk tonight.
For the Australian dollar (0.9125) it has been weakness since the release of the trade data yesterday which showed an unexpected fall into deficit but the fact that it has lost 0.47% which is roughly around the Yen’s loss and in between the GBP and Euro suggests that this is really just a USD move.

As you can see the reversal off the old trend channel was perfect and then the double top gave way to a nice reversal. I sold some and am currently short – Iw as looking for 0.9007 as a target based on the 4 hour charts but this has now moved to 0.9112. So I will likely scale some back under 20 if it gets there this morning.
What drove the US dollar was the very strong employment data overnight and I picked up a note from Business Insider in the US which said that UBS punched their non-farm payrolls guesstimate up to 210,000 from 170,000 after the employment sub index of the ISM data which was the strongest result for the services sector since 2005. Elsewhere on the employment front jobless claims fell to 323,000 and the ADP employment figure printed +176,000 all of which is making traders confident tonight’s data will be strong and that the taper is on its way.

All of the above combined to take the wind from the stock markets sails as early strength gave way to only marginal gains at the close. The Dow finished at 14937 up 0.04% after an intraday high of 14987. The Nasdaq was up 0.27% and the S&P 500 closed at 1655 up 0.12%. In Europe stocks had a much better time of it as early strength gave way to weakness and then a grinding recovery across the rest of the day. The FTSE finished up 0.88%, the DAX up 0.39%, the CAC rose 0.67%, the FTSE in Milan was 0.78% higher and stocks in Madrid rose 0.78%.

The S&P 500 is still holding the trendline from November 2012 and while above 1625 the uptrend is intact.

On Commodity markets Gold fell back again by $16 or 1.21% to $1371 oz. Silver fell 0.70%, Copper moved just a cent to $3.24 lb while Crude rose 1.11% to $108.42 Bbl. Soybeans was at it again rising 1.8% while wheat fell 1.1% and Corn was 0.91% lower.

On the data front the biggest number each month is non-farm payrolls and with Taper Talk in the air its importance is heightened still further at the moment. So the release tonight is eagerly anticipated by markets. Prior to that though we will get a bunch of Trade and IP data out of Germany, France and the UK so Friday night is going to be an interesting one.

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