Market Brief
Today’s key event is the US job data. Amid slightly disappointing ADP read on Wednesday (190k vs. 200k expected), the consensus for the NFP is a strong 217k (vs. 215k last month) with lower unemployment rate (5.2% vs. 5.3% prior read) and steady wages in August. The US 10-year yields stabilise above the 200-dma (2.1255%) and trade range-bound ahead of the job report. This NFP report is the last one before the next FOMC meeting and is broadly seen as the last chance to maintain alive the hope for a September rate hike. In our opinion, a lift-off at the next FOMC meeting is definitely off the table as inflation pressures will likely remain subdues due to persistent low commodity prices and gloomy outlook on global economy.
USD/JPY fell to 119.11 in Tokyo and validate a break of the 40-week moving average as traders adjust their positions ahead of the job report. In case of a lower NFP read, the support standing at 118.17 will not last long while on the upside the resistance lying around Y122 will likely resist to buying pressure. On the equity front, Asian regional equity markets are broadly lower this morning as risk-off sentiment is gaining ground. Australian shares are the only ones trading in positive territory as they recover from yesterday’s sell-off. The S&P/ASX is up 0.25%, in Hong Kong the Hang Seng is down -0.43% while in South Korea the KOSPI index retreats 1.54%. Japanese shares are suffering a heavier sell-off as the Nikkei 225 is down -2.15% and the TOPIX index -2.06%.
Yesterday’s hot news was commentary from the European Central Bank. Even though Mario Draghi left the main refinancing rate unchanged at 0.05% as expected, he announced that the ECB leaves the door wide open for further quantitative easing. EUR/USD dropped 150pips to 1.1087 from 1.1237 and then stabilise around 1.1130. The biggest winner against the euro is the Japanese yen which gained 1.58% since yesterday morning, bringing EUR/JPY to Y133 from 139 two weeks ago.
EUR/CHF lost instantaneously 0.70% following the comments but was unable to move below the 1.08 threshold as the dynamic between the Swiss franc and the euro has changed somewhat over the summer. The Swiss economy is suffering enormously from a weak euro and is unable to expand substantially without a stronger single currency. We therefore think that downside risks are limited in EUR/CHF. USD/CHF is back above the 0.97 threshold, up 470pips from August 24 low, on renewed risk appetite.
Today traders will be watching CPI from Switzerland; industrial production from Sweden; Markit retails PMI from Germany, France, Italy and the euro zone; change in nonfarm payrolls, unemployment rate, average hourly earnings and underemployment rate from the US.
Currency Tech
EUR/USD
R 2: 1.1871
R 1: 1.1714
CURRENT: 1.1135
S 1: 1.1017
S 2: 1.0809
GBP/USD
R 2: 1.5803
R 1: 1.5509
CURRENT: 1.5218
S 1: 1.5171
S 2: 1.5087
USD/JPY
R 2: 135.15
R 1: 125.86
CURRENT: 119.32
S 1: 116.18
S 2: 115.57
USD/CHF
R 2: 1.0240
R 1: 0.9904
CURRENT: 0.9740
S 1: 0.9513
S 2: 0.9259