October’s US employment report to shake the markets

Amidst low volatility in the FX market the USD edged lower against its counterparts yesterday. Yet in October the USD recorded gains on a monthly level, not seen since April 2022. The greenback is now entering a week where uncertainty is expected to rise and on a fundamental level, we highlight the US elections next Tuesday and the Fed’s interest rate decision next Thursday. On the election front, uncertainty remains high as the polls show the two candidates, Harris and Trump, being neck on neck. Nevertheless, some market participants seem to be pricing in that Donald Trump will win, thus the “Trump trade” seems to be gaining traction. On a monetary level, the market seems to increasingly expect the Fed to proceed with a rate cut on Thursday and in the December meeting, which in turn may weigh on the USD.

In the FX market the USD weakened against the JPY yesterday with USD/JPY dropping and testing the 152.00 (S1) support line. As the upward trendline that has been guiding the pair since the 21^st of October has been broken we switch our bullish outlook in favour of a sideways motion temporarily. Please note that the RSI indicator despite correcting lower, remains between the readings of 50 and 70, implying the presence of a bullish predisposition on behalf of the market for the pair. For a bearish outlook, we would require the pair to clearly break the 152.00 (S1) line and take aim of the 149.40 (S2) level. Should the bulls renew their dominance over the pair’s direction, we may see USD/JPY reaching if not breaching the 155.20 (R2) level.

Today the market is expected to focus on the release of the US employment report for October. The unemployment rate is expected to remain unchanged at 4.1%, the Non-Farm Payrolls (NFP) figure after a surprise rise in September’s report, to drop more than half and reach as low as 113k and the average earnings growth rate to remain unchanged to 4.0%yoy. Overall, should the actual rates and figures meet their respective forecasts, the market may be getting some mixed signals yet the wide fall of the NFP figure may worry market participants for a possible loosening of the US employment market and 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 a more dovish 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, while the release may have ripple effects beyond the FX market also on US stock markets and gold’s price.

US stockmarkets uniformly ended the day in the reds yesterday. On a technical level and for a rounder view we have a look at S&P 500’s daily chart. The index had a marked drop yesterday aiming for the 5675 (S1) support line. Given that the upward trendline has been broken yet the index’s price action has still to break the S1, we tend to maintain a bias for a sideways motion. Yet the RSI indicator remains below the reading of 50, implying a bearish predisposition for the index. For a bearish outlook though, we would require the index’s price action to break the 5675 (S1) support line, thus paving the way for the 5440 (S2) support level. For a renewal of the index’s bullish direction, we would require S&P 500 to reverse yesterday’s losses and continue to break the 5890 (R1) resistance line which is a record high level for the index.

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Today in the European session, we get Switzerland’s CPI rates for October and UK’s final manufacturing PMI figure for the same month. In the American session, besides the US employment report for October, we also get Canada’s manufacturing PMI figure and from the US the ISM manufacturing PMI both for October.