US employment report under the spotlight

The USD edged lower against its counterparts, yesterday ahead of the release of July’s US employment report. We note that the market’s expectations may have been enhanced especially for the NFP figure after the release of the ADP figure for the same month, showing that the rise of private payrolls cooled off less than expected. Today we highlight the release of the US employment report for July and the NFP figure is expected to drop slightly implying a continuance of the weakening of the US economy’s ability to actually create new positions, while the unemployment rate is expected to remain unchanged at 3.6%, implying that the US employment market remains tight. For the time being, we see that risks seem to be skewed to the upside and should there be better rates and figures than expected, we may see the USD getting some support as it would leave the door open for the Fed to proceed with another rate hike in the September meeting. On the other hand, a possible wider drop of the NFP figure and a tick up of the unemployment rate, may hint towards an easing of the US employment market’s tightness and may disappoint traders, thus weakening the greenback. The release could increase volatility substantially for USD pairs hence caution is advisable if one should trade at the time of the release. We highlight that the release may have wider ripple effects beyond the FX market and should data show an easing of the US employment market we may see support rising for US stockmarkets and gold’s price and vice versa.

USD/JPY seems to maintain a sideways motion between the 143.35 (R1) resistance line and the 141.90 (S1) support line. We tend to maintain our bias for the sideways motion to continue currently, given also that the RSI indicator is running along the reading of 50, implying a rather indecisive market. On the other hand, we have to note that the release of the US employment report for July and/or the release of BoJ’s summary of opinions for the July meeting on Monday could alter the pair’s direction. Should the bulls take over, we may see the pair breaking the 143.35 (R1) line and aim for the 145.10 (R2) resistance base. Should bears take over we may see USD/JPY breaking the 141.90 (S1) line and continue lower to test the 140.80 (S2) support hurdle.

Back in the FX market and north of the US border and at the same time of the release of the US employment data we also get Canada’s employment data for July. The unemployment rate is expected to tick up and reach 5.5%, while the employment change figure is expected to drop more than half and reach 21.1k. Should the actual rates and figures meet their respective forecasts, we may see the CAD weakening as they would imply that the Canadian employment market’s tightness seems to crack. Such rates and figures may enhance Bank of Canada’s predisposition to remain on hold.

USD/CAD rose breaking the 1.3335 (S1) resistance line, now turned to support yet stabilised in the past 24 hours just above the S1. In its stabilisation the pair broke the upward trend line guiding it, hence we tend to temporarily switch our bullish outlook in favor of a sideways movement bias. Nevertheless, we may see the simultaneous release of the US and Canadian employment data for July altering the pair’s direction. Should the bulls be in charge we may see the pair aiming if not breaking the 1.3450 (R1) resistance line, while if the bears take over, we may see USD/CAD breaking the 1.3335 (S1) line and aim for the 1.3230 (S2) support level.

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In today’s European session, we note the release of Germany’s industrial orders for June, the Eurozone’s and the UK’s construction PMI figures for July and the Eurozone’s retail sales for June, while on the commodities front OPEC is to have a meeting and could shake oil prices, while on a monetary level, we note that BoE Chief Economist Hugh Pill is scheduled to speak. Also, note that JPY traders may be interested in the release of BoJ’s summary of opinions for its July meeting.