US employment report for September in the epicenter

Today the market is expected to focus on the release of the US employment report for September. The unemployment rate is expected to remain unchanged at 4.2%, the NFP figure to edge slightly lower to 140k if compared to August’s 142k and the average earnings growth rate to remain unchanged to 3.8%yoy. Overall, should the actual rates and figures meet their respective forecasts, the market may perceive the release as indicative of a cooling US employment market, thus may weigh on the USD. Yet the actual rates and figures seldom meet their forecasts and should the data show an even weaker US employment market than expected, the USD may tumble as the market expectations for extensive rate cuts by the Fed may be enhanced. On the flip side should the data show a tightening employment market in the US, the release could provide support for the USD, as it could provide more leeway for the Fed to maintain its cautious approach in cutting rates in the coming meetings and force the market to reposition itself.

USD/JPY continued to rise yesterday, yet today corrected lower testing the 146.00 (S1) support line. It should be noted that the correction lower for the pair took place after the price action broke above the upper Bollinger band as was noted in yesterday’s report. Nevertheless and despite the correction lower of the RSI indicator we tend to maintain our bullish outlook for the pair. Should the bulls maintain control over the pair we may see it aiming for the 149.40 (R1) resistance line. Should the bears take over we may see the pair breaking the 146.00 (S1) support line, reversing Wednesday’s gains, breaking the upward trendline guiding the pair since the mid of September and reaching the 143.40 (S2) support level.

On the commodities front, oil prices continued to rise yesterday stoked by intense market worries for the situation in the Middle East. After Iran’s missile attack last Tuesday, Israel’s response is expected with the question of how hard the response will be looming over the markets. Should Israel target and destroy Iranian oil infrastructure such as the Khark Island, a major Iranian oil export hub, we may see oil prices getting a substantial boost, as market worries for the supply chains and a subsequent tightening of the international oil market, could intensify further. Yet the situation could get even worse should Israel choose to hit Iranian nuclear sites, a move Washington has warned Israel to avoid. In any case, the situation in the Middle East is critical and could evolve into a full-blown-out regional war, with adverse effects not only on oil supply chains. On the other hand, a softer target such as military facilities, may allow for a partial de-escalation of the situation or at least for a temporary easing of market worries for oil traders. Please note that OPEC stated that it has the spare capacity to cover for any supply losses from Iran, but would struggle if Iran attacks oil facilities of neighbouring Arab countries.

WTI’s price action rallied yesterday clearly breaking the 71.15 (S1) resistance line now turned to support. It should be noted that the RSI indicator also rose above the reading of 50 implying the build up of a bullish sentiment for the commodity’s price among market participants. Hence we switch our sideways motion bias in favour of a bullish outlook. Yet we note that the price action has briefly breached the upper Bolinger band which could cause a correction lower for WTI’s price. Should the bulls maintain control we may see WTI’s price aiming if not breaching the 75.50 (R1) resistance line. Should the bears take over, we expect WTI’s price to break the 71.15 (S1) support line, break the upward trendline guiding it since the 10 of September and thus opening the gates for the 68.00 (S2) support base.

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Today we note the release of Frances’ industrial output growth rate for August, while on the monetary front, we note that BoE Chief Economist Pill and ECB Vice President De Guindos speak. In the American session, Canada’s Ivey PMI for September is to be released, while NY Fed President Williams and ECB board member Elderson speak.