November’s US employment report in focus

While the Fed’s interest rate decision is looming next week, market attention is shifting towards the release of the US employment report for November, due out later today. The NFP figure is expected to rise to 180k from October’s low of 150k, the unemployment rate to remain unchanged at 3.9% and the average earnings growth rate to slow down to 4.0% yoy from October’s 4.1% yoy. Should the actual rates and figures meet their respective forecasts, we may see the USD gaining some support, especially as the NFP figure improves. It should be noted that the market may be linking the release of the Fed’s interest rate decision with the employment data given also the Fed’s dual mandate to keep inflation low and steady and at the same time promote maximum employment. The market is expecting the bank to start cutting rates next year and should today’s employment data show a tightening US employment market we may see the market’s expectations of an early rate cut next year easing, which in turn may amplify the support for the USD.

On a technical level, the USD weakened against the AUD, with AUD/USD testing the 0.6620 (R1) resistance line. Yet the pair was unable to break the R1, while the RSI indicator is running along the reading of 50 implying a rather indecisive market. For a bullish outlook, we would require the pair to clearly break the 0.6620 (R1) resistance line and aim for the 0.6725 (R2) resistance nest. Should on the other hand the bears take control over the pair’s direction, we may see AUD/USD breaking the lower boundary of its current sideways motion, namely the 0.6515 (S1) support line and aim for the 0.6400 (S2) support base.  

Also we highlight JPY’s strengthening across the board, an issue also noted yesterday. Market expectations for BoJ to proceed with a rate hike, the first in decades, are intensifying, providing support for the Japanese currency. The market for the time being seems to be expecting the bank to remain on hold in its December and January meetings, yet also increasingly prices in a possible rate hike in the March meeting, according to JPY OIS. JPY’s strengthening began after comments by BoJ Governor Ueda yesterday implying an end to the negative rates era. Yet, inflationary pressures in the Japanese economy are still easing which may set some obstacles in BoJ monetary policy normalisation, while our worries for the economic outlook of Japan tend to intensify after the release of the revised GDP rate for Q3, showed a wider contraction than initially calculated. 

USD/JPY tumbled yesterday as it broke the 144.45 (R1) support line. now turned to resistance and continued lower aiming for the 141.50 (S2) support barrier, before correcting above the 143.00 (S1) support line. The pair’s relative stabilisation between the R1 and the S1 over the past 16 hours should allow us to adopt a bias for a sideways movement, yet we may not have seen the bears having said their final word yet. The RSI indicator is still near the reading of 30, implying a strong bearish market sentiment, yet also highlights the possibility of another correction higher. Furthermore the correction of the price action higher, allowed for some distance to be created with the lower Bollinger band, which could provide some room for the bears to play. Should the markets’ selling interest be renewed for the pair we may see USD/JPY breaching the 143.00 (S1) support line and aim for the 141.50 (S2) support level. Should the bulls take over, we may see USD/JPY breaking the 144.45 (R1) resistance line aiming for the 146.30 (R2) resistance level.   

Other highlights for the day:

Today in the European session, we get Germany’s final HICP rate for November and Sweden’s GDP rate for October, while ECB Vice President De Guindos is to take part in the ECOFIN meeting. In the American session, besides the US employment report for November, we also get from the US the preliminary University of Michigan consumer sentiment for December. On Saturday we note the release of China’s November inflation metrics. 

AUD/USD H4 Chart

Support: 0.6515 (S1), 0.6400 (S2), 0.6270 (S3)

Resistance: 0.6620 (R1), 0.6725 (R2), 0.6820 (R3)

USD/JPY H4 Chart

Support: 143.00 (S1), 141.50 (S2), 139.80 (S3)

Resistance: 144.45 (R1), 146.30 (R2), 148.25 (R3)

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