• The US Nonfarm Payroll report showed that the country added 265K jobs in September.
• Wall Street holds on to intraday losses but pared the bleeding.
• GBP/USD cannot bounce ahead of the weekly close, hinting at more pain ahead.

Following the US monthly employment report, the American dollar rallied, pushing GBP/USD down to an intraday low of 1.1089. According to the Bureau of Labor Statistics, the country added 265K new jobs in September, beating expectations, while the Unemployment Rate unexpectedly slid to 3.5%. The strength in the sector left the path clear for the US Federal Reserve to keep hiking rates at the whopping pace of 75 bps per meeting.

The greenback’s rally lost steam after Wall Street’s opening, as stocks hold on to pre-opening losses without extending their slumps. Some profit-taking ahead of the weekend has helped major pairs to bounce, but that’s not the case for GBP/USD, which currently battles to retain the 1.1100 threshold.

GBP/USD technical outlook

The GBP/USD pair is down for a third consecutive day and not far away from the weekly low posted on Monday at 1.1085. Technical readings in the near-term support a bearish continuation in the near term, particularly if the pair pierces the mentioned weekly low. The next relevant support level is 1.1024, September 30 daily low.

Chances of recovery are pretty much null, although a corrective advance may surge if the pair recovers beyond the 1.1130 price zone.

• EUR/USD fell sharply with the initial reaction to US jobs report.
• Nonfarm Payrolls in the US rose by 263K in September.
• The pair remains on track to end the week little changed.

EUR/USD managed to erase a large portion of its daily losses but lost its recovery momentum before reaching 0.9800. As of writing, the pair was down 0.1% on a daily basis at 0.9780. Following the latest price action, EUR/USD remains on track to end the week flat.

Dollar capitalizes on upbeat NFP

Earlier in the day, the data published by the US Bureau of Labor Statistics revealed that Nonfarm Payrolls rose by 263,000 in September. This print came in better than the market expectation for an increase of 250,000 and helped the dollar outperform its rivals. Additionally, the Unemployment Rate declined to 3.5% from 3.7%.

With the initial reaction, the US Dollar Index (DXY) jumped to a daily high of 112.82 and forced EUR/USD to drop to a weekly low of 0.9726. Week-end flows and profit-taking, however, seem to be limiting the dollar's gains with the DXY retreating below 112.50 toward the London fix. 

Meanwhile, Wall Street's main indexes are trading deep in negative territory, making it difficult for EUR/USD to stretch higher. At the time of press, the Nasdaq Composite and the S&P 500 indexes were both losing more than 2% on the day.

Technical levels to watch for

The Canadian dollar is set to see modest weakening in the fourth quarter as the Federal reserve outguns the Bank of Canada (BoC). But the loonie is expected to gain ground in 2023 as the USD falls out of favour, economists at CIBC Capital Markets report.

CAD to weaken, before following the pack stronger in 2023

“The Fed’s hawkish announcement in late September and general risk aversion has sent the USD on a broadly stronger trajectory, and the loonie has depreciated as a result. There's likely more of the same to come, given a gap opening up in where policy rates will peak, and soft global growth favouring the USD and capping any upside for commodities.”

“A run to 1.40 is quite possible, and a rebound at year end should still see CAD in 1.38 territory.”

“In 2023, we see scope for a broad softening in the USD as the Fed pauses hiking below current market expectations, which will see CAD end the year stronger, with USD/CAD at 1.32.”

 “The loonie could still end 2024 stronger, with USD/CAD at 1.28, helped by expectations for a pickup in global growth and commodity prices in 2025 that would benefit Canada's export sector.”

The September employment gain was not too far off relative to consensus. NFP should be broadly neutral for the USD at this time, in the opinion of economists at TD Securities.

USD/JPY above 145 risks yen-tervention

“We do not think today's report will do much to sway the USD one way or the other. At a minimum, markets will likely have to wait until the upcoming CPI report to stake a bigger claim in direction.” 

“We continue to see USD resilience into year-end. The currency we think that is most vulnerable to the USD wrecking ball is the CAD given its very awful household debt servicing outlook.”

“We are wary that a move above 145 in USD/JPY will compel FX intervention, which could be more likely given upcoming CPI (especially if stronger). That could introduce temporary USD drag. Nonetheless, the USD remains best in class, and we look to accumulate on dips.”

The loonie firms modestly ahead. Economists at Scotiabank expect the USD/CAD pair to slide below 1.3690 in the near-term.

Broader outlook is somewhat mixed

“USD/CAD cast a marginally negative look to the very short-term charts, with the USD testing the 1.3750 twice before edging lower. That trend rather implies modest downside prospects for the USD in early trade below 1.3690 support, from a purely technical perspective.”

“The broader outlook is somewhat mixed, with the USD holding above the 1.36 area that we think is pivotal for the trend in the short run but holding a net loss on the week so far, suggesting stiff-ish resistance in the low/mid 1.38s remains.”

Economists at Credit Suisse stay core bullish on the US dollar and see scope for a potentially final push higher later on in the fourth quarter. 

USD rally is seen overdone near-term

“The latest move to a new cycle high for the DXY has not been confirmed by weekly momentum, suggesting a trend that is tiring. Whilst we maintain our core and long-held bullish outlook, we think early Q4 can see a consolidation phase unfold, before a potentially final push stronger in the USD for a move to 118.37 in the DXY, potentially the 121.02 high of 2001.”

“Good support is seen at 109.29 through to 107.68, which is a cluster of levels including the 55-day average, 23.6% retracement of the entire 2021/2022 uptrend and September low which we look to ideally prove a solid floor. Should weakness extend (not our base case), we would expect strong support next at 105.01/104.64.”

• NZD/USD descends to a multi-day low amid the upbeat NFP-inspired modest USD strength.
• The US economy added 263K jobs in September and the unemployment rate falls to 3.5%.
• The data reaffirms Fed rate hike bets and favours the USD bulls amid the risk-off mood.

The NZD/USD pair comes under some selling pressure during the early North American session and drops to a four-day low following the release of the US labour market data. The pair, however, recovers a few pips and is currently trading with modest intraday losses, just below mid-0.5600s.

The US dollar hits a fresh weekly high in reaction to the upbeat US NFP report, which, in turn, exerts some downward pressure on the NZD/USD pair. The closely-watched jobs data showed that the unemployment rate unexpectedly fell to 3.5% in September from 3.7%. Furthermore, the US economy added more-than-anticipated, 263K new jobs during the reported month.

The data lifted bets for another supersized 75 bps Fed rate hike move in November, which is evident from a fresh leg up in the US Treasury bond yields. This, along with the prevalent risk-off mood, is seen underpinning the safe-haven buck and driving flows away from the risk-sensitive kiwi. The NZD/USD pair, however, find some support near the 0.5600 mark.

The lack of follow-through selling warrants some caution for bearish traders and before positioning for any further decline. That said, any meaningful recovery still seems elusive amid the prospects for a more aggressive policy tightening by the Fed. This, along with recession fears, suggests that the path of least resistance for the NZD/USD pair is to the downside.

Technical levels to watch

• Non-farm payroll rise by 263K in September, in line with expectations.
• US dollar rises across the board, as US yields soar.
• USD/CHF jumps to test recent highs around 0.9950 and retreats.

Boosted by a rally of the US dollar following the NFP, the USD/CHF pair rose to test the 0.9950/60 key resistance area and then pulled back. The pair hit a weekly high at 0.9953 and then retreat to 0.9915.

The zone around 0.9950/60 continues to be a critical support that capped the upside last week and also on Friday. A consolidation above could trigger more gains for the dollar. While as long as it remains below, the Swiss franc could recover ground. The immediate support is seen at 0.9915 followed by 0.9875 and then the weekly low at 0.9780.

After the report, US yields jumped with the 2-year approaching the top, near 4.35% and the 10-year hitting levels above 3.90%. The DXY jumped to 112.83, a fresh weekly high and then pulled back, trimming gains. It is up by just 0.25%, hovering around 112.50.

NFP cooled in September, job market still strong

The US Labor Department reported on Friday that the jobs in the US economy (Non-farm payrolls) rose by 263K in September, above estimates of 250K. The Unemployment Rate dropped unexpectedly from 3.7% to % to 3.5%.

“The unemployment rate returned to a 50-year low of 3.5% through a combination of solid job growth and a roughly flat labor force. Wage growth moderated slightly but remains well above rates that are consistent with the Fed's 2% inflation target. We continue to look for the FOMC to hike its policy rate by 75 bps at its November meeting”, explained analysts at Wells Fargo.

Despite Monday’s US holiday (Columbus Day), next week’s calendar is busy with the FOMC minutes on Wednesday, CPI on Thursday and retail sales on Friday. Those numbers will likely weigh on expectations about Fed’s monetary policy.

Technical levels

• USD/TRY trades at shouting distance from 18.6000.
• The lira loses ground for the 10^th month in a row so far.
• US Nonfarm Payrolls came in above estimates in September.

Further gains in the dollar keeps USD/TRY bid and closer to the 18.6000 level at the end of the week.

USD/TRY bid on USD-strength

USD/TRY keeps the upbeat note well in place in the second half of the week and appears further bid amidst the continuation of the weekly recovery in the greenback.

Indeed, another solid print of US Nonfarm Payrolls (+263K) coupled with a drop in the jobless rate and higher US yields lend extra wings to the buck and collaborates with the relentless upside in spot.

It is worth noting that the pair has so far entered the 10^th consecutive month with gains. Furthermore, spot only printed monthly gains in only four months since 2021 (January, July, August and December 2021).

On another front, news cited South Korea transferred $780M to the Turkish central bank (CBRT) last week as part of a swap deal worth $2 billion and signed back in 2021. Furthermore around the central bank, net FX reserves rose to around $9.70B by September 30 vs. a 2-decade low of just above $6B recorded in July.

What to look for around TRY

USD/TRY keeps navigating the area of all-time tops near 18.60 amidst the combination of omnipresent lira weakness and the renewed bid bias in the dollar.

So far, price action around the Turkish lira is expected to keep gyrating around the performance of energy and commodity prices - which are directly correlated to developments from the war in Ukraine - the broad risk appetite trends and the Fed’s rate path in the next months.

Extra risks facing the Turkish currency also come from the domestic backyard, as inflation gives no signs of abating (despite rising less than forecast in July and August), real interest rates remain entrenched well in negative territory and the political pressure to keep the CBRT biased towards low interest rates remains omnipresent.

In addition, the lira is poised to keep suffering against the backdrop of Ankara’s plans to prioritize growth (via higher exports and tourism revenue) and the improvement in the current account.

Key events in Türkiye this week: CPI, Producer Prices, Manufacturing PMI (Monday).

Eminent issues on the back boiler: FX intervention by the CBRT. Progress of the government’s scheme oriented to support the lira via protected time deposits. Constant government pressure on the CBRT vs. bank’s credibility/independence. Bouts of geopolitical concerns. Structural reforms. Presidential/Parliamentary elections in June 23.

USD/TRY key levels

So far, the pair is gaining 0.7% at 18.5866 and faces the next hurdle at 18.5908 (all-time high October 4) followed by 19.00 (round level). On the downside, a break below 18.1451 (55-day SMA) would expose 17.8590 (weekly low August 17) and finally 17.7586 (monthly low).

Dual US and CA employment reports largely delivered on consensus expectations – leaving a broadly neutral impact on the USD. But economists at TD Securities expect USD/CAD to edge higher towards 1.40.

Looking to 1.40 as the next major target

“The takeaway is that while both reports show signs of some moderation in the labour market, we think the impact on the USD is broadly neutral at this time.”

“USD/CAD is likely to make another lurch higher, but the market may need to wait for US and maybe CA CPI before securing a new YTD high.”

“We see strong support to buy into USDCAD dips around 1.3600/40. A push above 1.38 will re-open 1.40 risk. We think we will need a bit more time to get there but nonetheless, the destination remains up.”

• The US economy added 263K jobs to the economy while the unemployment rate ticked lower.
• The USD/JPY dived towards 144.66 following the US NFP release and recovered some ground.
• The US 10-year T-bond yield edges towards 3.90%, usually a tailwind for USD/JPY traders, which remain cautious after September’s BoJ intervention.

USD/JPY remains subdued after US employment data unexpectedly surprised market participants, with the US economy adding more jobs than economists estimated. At the time of writing, the USD/JPY is trading at around 144.90s, below its opening price.

Data revealed by the US Labor Department reported that Nonfarm Payrolls increased by 263K, above estimates of 250K, while the Unemployment Rate headed south from 3.7% to 3.5%, putting additional pressure on the Federal Reserve. Given Fed official’s expressions throughout the last week, speaking about the tightness of the Labor market, September’s jobs report would likely justify another three-quarter percent (0.75%) rate hike.

Before the US employment data hit traders’ screens, the Fed’s chances of a 75 bps rate hike were at 85.5%. After the report, it increased to 92%.

Elsewhere, the US Dollar Index, a gauge of the buck’s value against a basket of peers, extended its gains by 0.31%, at 112.636. Notably, the greenback made a U-turn and is positive in the week by 0.40%.

US Treasury bond yields jumped upwards, with the US 10-year Treasury bond yield advancing six bps, at 3.895%, a tailwind for the USD/JPY.

However, the USD/JPY uptrend was capped by the 145.00 line in the sand imposed on September 22 by the Bank of Japan (BoJ) intervention in the markets. Of note, the USD/JPY fluctuated in the 144.63-145.34 range after the US NFP release.

What to watch

Next week’s US economic docket will reveal inflation figures for September, namely the Consumer Price Index (CPI), alongside the University of Michigan Consumer Sentiment.

USD/JPY 1-hour Chart

USD/JPY Key Technical Levels

S&P 500 is expected to see a recovery phase. But an eventual sustained break lower is expected in Q4, with 3235/3195 as the level targeted by the Credit Suisse analyst team.

S&P 500 could enjoy a temporary recovery phase

“Although our broader outlook stays bearish, we continue to look for a temporary recovery phase to emerge for the first part of Q4, especially given bullish momentum divergences. Post this anticipated strength though, we look for a sustained move below 3595 in due course, for a fall to our core target of a cluster of supports at 3235/3195.”

“A triple weekly RSI momentum divergence suggests early Q4 should see a temporary recovery phase.”

• AUD/USD slides back below the 0.6400 mark amid the emergence of some USD buying.
• The upbeat US NFP report reaffirms Fed rate hike bets and boosts demand for the buck.
• The prevalent risk-off mood is exerting additional pressure on the risk-sensitive aussie.

The AUD/USD pair struggles to capitalize on its modest intraday bounce and attracts fresh sellers near the 0.6430 region during the early North American session. Spot prices slide further below the 0.6400 mark in reaction to the upbeat US jobs data and move well within the striking distance of the lowest level since April 2020 touched last week.

The US dollar catches some bids and hits a fresh weekly high after the closely watched US NFP report showed that the unemployment rate unexpectedly to 3.5% in September from 3.7% previous. Additional details revealed that the US economy added 263K new jobs during the reported month, beating consensus estimates for a reading of 250K. The data all but reaffirmed expectations that the Fed will stick to its aggressive policy tightening and continues to underpin the USD, which, in turn, is seen exerting some pressure on the AUD/USD pair.

The prospects for faster interest rate hikes by the US central bank trigger a fresh leg up in the US Treasury bond yields. This, along with the risk-off mood, boosts demand for the safe-haven buck and contributes to driving flows away from the risk-sensitive aussie. The market sentiment remains fragile amid worries about the economic headwinds stemming from rapidly rising borrowing costs and geopolitical risk. Moreover, a less hawkish Reserve Bank of Australia supports prospects for a further depreciating move for the AUD/USD pair.

Furthermore, acceptance below the 0.6400 mark could be seen as a fresh trigger for bearish traders. Hence, a subsequent slide back towards challenging the YTD low, around the 0.6365 region, remains a distinct possibility. The downward trajectory could further get extended and make the AUD/USD pair vulnerable to test the next relevant support near the 0.6300 round figure.

Technical levels to watch

EM FX is vulnerable to further pressure in the short term. Nonetheless, economists at TD Securities see scope for some recovery in 2023.

Deterioration in external positions to limit gains

“While near-term pressures on EM FX will likely persist, we see scope for some recovery next year. We see particularly strong recoveries in BRL, ZAR, PLN and HUF.”

“Our expectation that the USD will lose ground next year will bode well for EM FX, helping to reverse the downward pressure that has been in place over recent months. Higher real rates will also provide some support to many EM FX.” 

“However, we are cognisant of a deterioration in external positions across EM suggesting that EM FX will find it difficult to recover significantly even against the background of a softer USD profile.”

• US payrolls rise by 263K against expectations of 250K.
• Canada: Net change in employment during September 21K vs 20K.
• Loonie drops versus the dollar, although it hits fresh daily highs against most of its rivals.
• USD/CAD rises toward daily highs amid a stronger dollar.

The USD/CAD climbed from 1.3722 to 1.3760, matching the daily highs following the September employment reports from Canada and the US. Both showed better-than-expected numbers. The dollar rose across the board but also the loonie, although at a slower pace.

Positive reports in Canada and the US

The US official employment report showed non-farm payrolls rose by 263K in September, above the 250K expected. The unemployment rate dropped unexpectedly from 3.7% to 3.5%.

In Canada, net change in employment was positive by 21.1K during September, in line with market consensus. The unemployment rate fell from 5.4% to 5.2%, with the participation rate falling from 64.8% to 64.7%.

The greenback rose after the figures, boosted by higher US yields. The US 10-year yield is at 3.90%, while the 2-year reached 4.34%, a few points below the cycle highs.

Despite the dollar’s strength, so far USD/CAD remains in the range between 1.3760 and 1.3705, still undecided. The loonie printed fresh highs versus currencies like AUD, NZD, GBP and EUR after the report.

Technical levels

• The gold price tumbled below the $1700 figure, in the aftermath of the US jobs report.
• US Nonfarm Payrolls exceeded estimates at 263K, further Fed hikes coming.
• US Treasury bond yields pushed to the upside, staying above 3.80%.

Gold price dropped after the US Labor Department reported employment figures, which exceeded estimations, justifying the Fed’s need for further tightening, bolstering the greenback. Therefore, XAU/USD is trading at around $1690, below its opening price.

Before the US Nonfarm Payrolls report was released, the yellow metal meandered around $1710. However, once the headline crossed newswires, gold’s initial reaction slid towards the $1700 region, but the initial move dissipated. Nevertheless, at the time of typing, it extended its losses below $1700 in a volatile reaction.

US Data reported by the US Bureau of Labor Statistics (BLS), showed that the US economy added 263K new jobs, smashing estimations of 250K, while the Unemployment Rate ticked lower to 3.5%, from 3.7% expectations. Even though it is a lower reading than August’s figures, it was above estimates, which would further cement the case for e Federal Reserve rate hike.

In the meantime, money market futures have priced in a 92% chance of a Fed 75 bps rate hake, up from 85.5%, before the US Nonfarm Payrolls report.

US Treasury bond yields pushed to the upside, with the US 10-year Treasury bond yield advancing three bps, at 3.865%, while the US Dollar Index, a gauge of the buck’s value vs. six currencies, is up 0.28%, at 112.565.

What to watch

Now that the US Nonfarm Payrolls report is on the rearview mirror, the next important events in the US calendar would be September CPI figures and the University of Michigan Consumer Sentiment in the next week.

Gold 5-minute Chart

Gold Key Technical Levels

• Unemployment Rate in Canada declined unexpectedly in September.
• USD/CAD continues to trade in daily range above 1.3700.

The Unemployment Rate in Canada declined to 5.2% in September from 5.4% in August with the Net Change in Employment coming in at 21.1K, slightly better than the market expectation of 20K, the data published by Statistics Canada showed.

"Year-over-year wage growth remained above 5% for a fourth consecutive month, with the average hourly wages of employees rising 5.2% (+$1.57 to $31.67) compared with September 2021 (not seasonally adjusted)," the publication further read. 

Market reaction

The Canadian dollar managed to stay resilient against the greenback, which has started to gather strength on the upbeat Nonfarm Payrolls report. As of writing, USD/CAD was flat on the day at 1.3745.

• GBP/USD drops back closer to the daily low amid the emergence of fresh USD buying.
• The upbeat US NFP data reaffirms Fed rate hike bets and acts as a tailwind for the buck.
• Concerns about the UK’s fiscal policy weigh on the GBP and contribute to the downtick.

The GBP/USD pair meets with a fresh supply during the early North American session and slides back closer to the daily low, below mid-1.1100s in reaction to the upbeat US employment details.

The US dollar reverses an intraday dip and climbs to a fresh weekly high after the headline NFP report showed that the US economy added 263K new jobs in September. The reading marks a notable slowdown from the 315K reported in the previous month, though surpasses consensus estimates for a reading of 250K.

Additional details revealed that the unemployment rate fell to 3.5% during the reported month from 3.7% in August, reaffirming hawkish Fed expectations. This, in turn, remains supportive of elevated US Treasury bond yields and underpins the greenback, which exerts some pressure on the GBP/USD pair.

Apart from rising bets for a more aggressive policy tightening by the Fed, the prevalent risk-off mood is seen as another factor benefitting the safe-haven buck. The British pound, on the other hand, is weighed down by concerns about the UK government's fiscal policy and looming recession risks.

The aforementioned fundamental factors suggest that the path of least resistance for the GBP/USD pair is to the downside. Hence, any attempted recovery might still be seen as a selling opportunity and runs the risk of fizzling out rather quickly.

Technical levels to watch

• The index remains bid around the 112.50 region on Friday.
• US Non-farm Payrolls rose by 263K jobs in September.
• The Unemployment Rate surprised markets and dropped to 3.5%.

The greenback, when tracked by the USD Index (DXY), sticks to the positive territory in the mid-112.00s in the wake of the publication of Nonfarm Payrolls for the month of September.

USD Index flirts with weekly highs

The index keeps the positive stance on Friday after the release of the Nonfarm Payrolls showed the US economy added 263K jobs during September, surpassing initial estimates for a gain of 250K jobs.

Further data saw the Unemployment Rate retreat to 3.5% (from 3.7%) and the key Average Hourly Earnings – a proxy for inflation via wages – rise 0.3% MoM and 5.0% from a year earlier. Additionally, the Participation Rate, receded a tad to 62.3% (from 62.4).

Next on tap in the US docket comes the speech by NY Fed J.Williams, Wholesale Inventories and Consumer Credit Change.

What to look for around USD

The index gathers extra pace and revisits the 112.50 zone following another healthy print from the Nonfarm Payrolls.

The firmer conviction of the Federal Reserve to keep hiking rates until inflation looks well under control regardless of a likely slowdown in the economic activity and some loss of momentum in the labour market continues to prop up the underlying positive tone in the index.

Looking at the more macro scenario, the greenback also appears bolstered by the Fed’s divergence vs. most of its G10 peers in combination with bouts of geopolitical effervescence and occasional re-emergence of risk aversion.

Key events in the US this week: Nonfarm Payrolls, Unemployment Rate, Consumer Credit Change, Wholesale Inventories (Friday).

Eminent issues on the back boiler: Hard/soft/softish? landing of the US economy. Prospects for further rate hikes by the Federal Reserve vs. speculation of a recession in the next months. Geopolitical effervescence vs. Russia and China. US-China persistent trade conflict.

USD Index relevant levels

Now, the index is gaining 0.27% at 112.56 and faces the next hurdle at 114.76 (2022 high September 28) seconded by 115.00 (round level) and then 115.32 (May 2002 high). On the flip side, a breach of 110.05 (weekly low October 4) would open the door to 109.35 (weekly low September 20) and finally 107.68 (monthly low September 13).

• US Payrolls rise by 263K in September, slightly more than 250K of market consensus.
• US dollar gains momentum after NFP, hits daily highs across the board.
• EUR/USD breaks multi-hour range to the downside, flat for the week.

The EUR/USD fell from 0.9790 to 0.9750 reaching the lowest level in a week following the release of the US official employment report that showed numbers slightly above expectations. The greenback strengthened after the numbers.

Prior to the report, the pair was moving in the range between 0.9785 and 0.9815. It is moving away from the lows, back into the range as the initial reaction of the dollar fades.

On a weekly basis, EUR/USD is about to end the week hovering around the same level it had a week ago, a negative considering it traded as high at 0.9999 a few days ago. The move off lows reflects that the bearish pressure still persists. On the positive, it has been able to remain above 0.9660/70, a relevant short-term support.

Calm ends with NFP

The US official employment report showed non-farm payrolls rose by 263K in September, above the 250K expected. The unemployment rate dropped unexpectedly from 3.7% to 3.5%.

The numbers triggered volatility across financial markets ending with hours of limited price action. The US dollar rose in line with US yields that hit fresh weekly highs after the report. Stocks turn lower.

Technical levels

Gold is expected to re-confirm its “double top.” Thus, strategists at Credit Suisse expect further weakness during the fourth quarter.

Only a convincing weekly close above $1,724 would ease the pressure on gold

“Gold below $1,691/76 completed a large ‘double top’ but is now hovering slightly back above this level. However, we expect gold to come under renewed pressure during Q4, also due to the fact that it remains still clearly below the falling 200-day average, currently seen at $1,824. We note that the next support is seen at $1,620/14, then $1,560 and eventually $1,451/40.”

“Only a convincing weekly close above the 55-day average at $1,724 would ease the pressure on the precious metal, with next resistance then seen at the even more important 200-day average at $1,824, which we would expect to cap at the very latest.”

Nonfarm Payrolls in the US rose by 263,000 in September, the data published by the US Bureau of Labor Statistics revealed on Friday. This reading followed August's increase of 315,000 and came in better than the market expectation of 250,000.

Further details of the report revealed that the Unemployment Rate declined to 3.5% from 3.7% with the Labor Force Participation Rate edging lower to 62.3% from 62.4.

Finally, wage inflation, as measured by the Average Hourly Earnings, fell to 5% on a yearly basis from 5.2%.

Follow our live coverage of market reaction to the US jobs report.

Market reaction

The US Dollar Index gained traction with the initial reaction to the US jobs report and was last seen rising 0.15% on the day at 112.42.

USD/TRY has broken multiple record highs for the past 24 months. In the view of economists at TD Securities, another currency crisis is in the making.

Turkey's macrofinancial conditions hang in a fragile and unsustainable balance

“The last currency crisis dates back to Dec 2021, but — we believe — a new one is in the making and can push the pair to 27.00 by December 2022.”

“Turkey's macrofinancial conditions hang in a fragile and, eventually, unsustainable balance.”

“The CBRT continues to provide indirect lira support through derivatives transactions that have swelled to USD65 bn in August, USD30 bn of which are maturing within one month. For these reasons, we think that another currency crisis is coming, though, obviously, its exact timing is difficult to call.”

• EUR/USD wobbles around the 0.9800 zone ahead of NFP.
• Bullish attempts face a tough barrier at the parity level.

EUR/USD gyrates around the 0.9800 region ahead of the release of US Nonfarm Payrolls on Friday.

The resumption of the buying interest is expected to meet a solid hurdle at recent peaks around the parity zone. Ideally, EUR/USD should leave behind this key resistance zone in the near term to allow for the continuation of the rebound.

In the longer run, the pair’s bearish view should remain unaltered while below the 200-day SMA at 1.0616.

EUR/USD daily chart

• DXY recedes modestly to the 112.00 region on Friday.
• Losses could gather pace and attempt another test of 110.00.

DXY comes under some tepid selling pressure after two consecutive sessions with gains at the end of the week.

The index faces an immediate risk with the release of the Nonfarm Payrolls. A negative surprise could encourage sellers to return to the market and drag the dollar to the area of recent lows in the proximity of the 110.00 mark.
On the upside, there is still scope for a move to the 2022 high near 114.80 (September 28).

The prospects for extra gains in the dollar should remain unchanged as long as the index trades above the 7-month support line near 107.50.

In the longer run, DXY is expected to maintain its constructive stance while above the 200-day SMA at 102.84.

DXY daily chart

EUR/CAD neared 1.36 earlier this week. The recovery needs to extend through this level to reach 1.40, economists at Scotiabank report.

Initial retracement resistance at 1.3606 is reachable

“Long-term (monthly) price action is supportive of a broader reversal developing; monthly candle patterns suggest a bullish ‘morning star’ reversal developed around the Aug low in the EUR.”

“Initial retracement resistance is 1.3606 (23.6% retracement of the 2020/21 decline from 1.5975/1.2875) and is reachable, we believe. Gains through here on a sustained basis target additional EUR appreciation towards 1.40 (38.2% retracement at 1.4062) in the medium-term.”

• EUR/JPY’s downside momentum picks up further pace on Friday.
• Extra decline could leave the 144.00 region as a short-term top.

EUR/JPY trades on the defensive for the third session in a row and breaks below the 142.00 mark at the end of the week.

The continuation of the decline would likely leave the recent peaks in the 144.00 neighbourhood as short-term tops. In case the downside accelerates, there is an interim support at the 139.50/75 band, where the 100- and 55-day SMAs coincide.

In the meantime, while above the key 200-day SMA at 136.15, the constructive outlook for the cross should remain unchanged.

EUR/JPY daily chart

The British pound was the second-worst-performing currency across G10 On Thursday. In the view of economists at MUFG Bank, GBP/USD could slide toward the last week’s lows.

Pound remains vulnerable 

“Given our view of broader financial conditions tightening further from here, the pound remains vulnerable with the real test coming after the Bank of England’s support for the Gilt market ends next week.”

“We continue to expect GBP/USD to decline back toward the lows hit early last week.”

See – GBP/USD: A return to sub-1.10 levels is a question of when rather than if – ING

US monthly jobs report overview

Friday's US economic docket highlights the release of the closely-watched US monthly jobs data for September. The popularly known NFP report is scheduled for release at 12:30 GMT and is expected to show that the economy added 250K jobs during the reported month, down from the 315K in August. The unemployment rate, however, is expected to hold steady at 3.7% in September. Apart from this, investors will take cues from Average Hourly Earnings, which could offer fresh insight into the possibility of a further rise in inflationary pressures.

Analysts at Societe Generale are more optimistic and offer their expectations on the upcoming US jobs data: “We project a 280K gain. The unemployment rate for September is expected to decline to 3.6% from 3.7% in August. The monthly flows are volatile. If there are no returnees, or if there is a net exodus from the labor force rather than re-entrants, the unemployment rate could drop even more than the 3.6% we project. Wages are expected to rise 0.5% MoM in September. We view the shortfall seen in August, when wages rose 0.3%, as noise in the data rather than the beginning of a new trend.”

How could the data affect EUR/USD?

Ahead of the key release, growing acceptance for another supersized 75 bps Fed rate hike move in November continues to act as a tailwind for the US dollar. A stronger print should reaffirm hawkish Fed expectations and lift the US Treasury bond yields higher, along with the greenback. Conversely, a weaker reading will add to growing worried about a deeper economic downturn and underpin the safe-haven buck. This, in turn, suggest that the path of least resistance for the EUR/USD pair is to the downside.

Eren Sengezer, Editor at FXStreet, offers a brief technical overview and writes: “Following Thursday's decline, the Relative Strength Index (RSI) indicator on the four-hour chart dropped below 50. The indicator, however, has been moving sideways since then, suggesting that sellers remain on the sidelines for the time being.”

Eren also outlines important technical levels to trade the EUR/USD pair: “On the downside, 0.9780 (Fibonacci 50% retracement of the latest uptrend) aligns as first support ahead of 0.9720 (Fibonacci 61.8% retracement) and 0.9650 (static level).”

“Resistances are located at 0.9830 (Fibonacci 38.2% retracement, 100-period SMA), 0.9900 (psychological level, Fibonacci 23.6% retracement) and 0.9920 (200-period SMA),” Eren adds further.

Key Notes

  •  Nonfarm Payrolls Preview: Five scenarios for trading King Dollar as markets plead for pain

  •  NFP Preview: Forecasts from nine major banks, employment trend slows down

  •  EUR/USD Forecast: US jobs report to determine next short-term direction

About the US monthly jobs report

The nonfarm payrolls released by the US Department of Labor presents the number of new jobs created during the previous month, in all non-agricultural business. The monthly changes in payrolls can be extremely volatile, due to its high relation with economic policy decisions made by the Central Bank. The number is also subject to strong reviews in the upcoming months, and those reviews also tend to trigger volatility in the forex board. Generally speaking, a high reading is seen as positive (or bullish) for the USD, while a low reading is seen as negative (or bearish), although previous months reviews and the unemployment rate are as relevant as the headline figure.

Canadian employment details overview

Statistics Canada is scheduled to publish the monthly employment report for September later this Friday at 12:30 GMT. The Canadian economy is anticipated to have added 20K jobs during the reported month, up sharply from the 39.7K fall reported in August. The unemployment rate, meanwhile, is anticipated to hold steady at 5.4% in September.

Analysts at RBC Economics offer a brief preview of the report and explain: “Canadian employment likely edged higher in September after three straight monthly declines. But as monetary tightening continues, that bump isn’t likely to last. The 40K drop in employment in August was largely due to a sharp 50K pullback in education employment numbers. Those seasonal distortions are expected to fade in September, fueling a 15K increase in overall employment.”

How could the data affect USD/CAD?

The data is likely to be overshadowed by the simultaneous release of the closely-watched US jobs report - popularly known as NFP. That said, a significant divergence from the expected readings should influence the Canadian dollar and provide some meaningful impetus to the USD/CAD pair. Ahead of the key release, bullish crude oil prices, along with the overnight hawkish remarks by Bank of Canada Governor Tiff Macklem, underpins the commodity-linked loonie. This, along with a modest US dollar downtick, exerts some downward pressure on the major.

Strong domestic data should provide an additional lift to the Canadian dollar and pave the way for some meaningful downside for the USD/CAD pair. Spot prices might then accelerate the fall towards the 1.3600 mark, which coincides with a three-week-old ascending trend line. A convincing break below will be seen as a fresh trigger for bearish traders and pave the way for a slide back towards challenging the monthly low, around the 1.3500 psychological mark.

Conversely, any disappointment from the Canadian jobs data and (or) upbeat US NFP report should assist the USD/CAD pair to regain positive traction. The subsequent strength has the potential to lift spot prices to the 1.3800 mark en route to the double-top barrier, around the 1.3835-1.3840 region, or the highest level since May 2020. Some follow-through buying would allow bulls to reclaim the 1.3900 mark. The momentum could get extended to the 1.4000 psychological level, with some intermediate resistance near the 1.3955-1.3960 zone.

Key Notes

  •  Canadian Jobs Preview: Forecasts from six major banks, employment to rise but outlook is dimming

  •  USD/CAD Outlook: Bulls take a brief pause, await US/Canadian jobs data before placing fresh bets

  •  USD/CAD: Positive Canadian jobs unlikely to avoid a retest of 1.3830 highs – ING

About the Employment Change

The employment Change released by Statistics Canada is a measure of the change in the number of employed people in Canada. Generally speaking, a rise in this indicator has positive implications for consumer spending which stimulates economic growth. Therefore, a high reading is seen as positive, or bullish for the CAD, while a low reading is seen as negative or bearish.

About the Unemployment Rate

The Unemployment Rate released by Statistics Canada is the number of unemployed workers divided by the total civilian labour force. It is a leading indicator for the Canadian Economy. If the rate is up, it indicates a lack of expansion within the Canadian labour market. As a result, a rise leads to weaken the Canadian economy. Normally, a decrease of the figure is seen as positive (or bullish) for the CAD, while an increase is seen as negative or bearish.

USD/CAD broke through its 1.32 resistance in September. Economists at the National Bank of Canada expect the pair to reach 1.39 by year-end before easing back to 1.30 by the end of the second quarter in 2023.

FOMC pivot expected by mid-2023

“With inflation cooling faster in Canada than in the US and the Bank of Canada unlikely to overtake the Fed in the coming months, as we expected, we do not see opportunities for a significant strengthening of the CAD against the USD until an FOMC pivot, which we expect in H1 2023.”

“We see USD/CAD at 1.39 at the end of Q4 22 and at 1.30 at the end of Q2 23.”

Bank of England (BOE) Deputy Governor Dave Ramsden said on Friday that they will assess the impact on demand and inflation of the government's growth plan during the forecast round leading up to the next policy meeting, per Reuters.

Key takeaways

"UKs energy support package represents a very significant fiscal intervention, which can be thought of as a shock."

"Impacts of UK's growth plan likely to be material for economic outlook over next three years, which is also the horizon relevant for monetary policy."

"Recent market movements could have a significant direct effect on the November forecasts and on the committee’s broader assessment of financial conditions."

"Overall, the adjustment in market prices has been consistent with tighter monetary policy globally."

"Part of market re-pricing continues to reflect broader global developments, but there is undoubtedly a UK-specific component."

"I think of BOE's gilt buying operation as an operation designed to buy time."

"One key consideration for the MPC at its upcoming meetings will be whether recent repricing of UK assets reflects a changed assessment by markets of the UK macroeconomic policy mix between fiscal and monetary policy."

Market reaction

GBP/USD edged slightly lower from session highs after these comments and was last seen rising 0.35% on the day at 1.1198.

USD/CHF has hit the 0.99 level. Nonetheless, economists at UBS expect the pair to ease back lower towards 0.96 by the end of the year.

Swiss National Bank to remain on a tightening path 

“While Swiss inflation moderated both on a YoY and MoM basis in September, we believe the SNB remains on a tightening path and wants a stronger CHF to continue to fight inflation.” 

“Any rally toward USD/CHF 0.99 or higher is a good opportunity to sell the greenback in favor of the franc, in our view, forecasting the pair to hit 0.96 by year-end and 0.92 by June next year.”

Silver (XAG/USD) is trading slightly above the $20.50 mark. This price is the year-end forecast of strategists at Commerzbank for the precious metal.

Silver to surge towards $25 by end-2023

“We have confirmed our price forecast for silver: the silver price is likely to be trading at $20.50 by year’s end, and to increase to $25 by the end of 2023.” 

“Thanks to its latest upswing, silver has noticeably reduced its previous significant undervaluation as compared with gold. Silver has further catch-up potential, in our view. This is suggested not least by the important role that silver plays in decarbonisation, the buzzwords here being photovoltaics and electric vehicles.”

• Gold oscillates in a narrow band through the first half of the European session on Friday.
• Aggressive Fed rate hike bets, elevated US bond yields continue to act as a headwind.
• Recession fears and the risk-off mood offer some support amid a modest USD downtick.
• Investors keenly await the US monthly employment data for a fresh directional impetus.

Gold struggles to gain any meaningful traction on Friday and seesaws between tepid gains/minor losses through the first half of the European session. The XAU/USD, however, manages to hold above the $1,700 mark as traders keenly await the closely-watched US monthly employment details for a fresh impetus.

The popularly known NFP report is scheduled for release later during the early North American session and will play a key role in influencing Federal Reserve's rate hike plans. In fact, the markets seem convinced that the US central bank will tighten its monetary policy at a faster pace to curb inflation and have been pricing in another supersized 75 bps increase in November. Hence, the key labour market report will help to determine the next leg of a directional move for gold.

In the meantime, hawkish Fed expectations remain supportive of elevated US Treasury bond yields and continue to act as a headwind for the non-yielding yellow metal. That said, a modest USD pullback from the vicinity of the weekly high is seen offering support to the dollar-denominated gold. Apart from this, the prevalent risk-off mood - amid growing worries about a deeper global economic downturn - further contributes to limiting the downside for the safe-haven precious metal.

The market sentiment remains fragile amid concerns about economic headwinds stemming from rapidly rising borrowing costs. Furthermore, the risk of a further escalation in the Russia-Ukraine conflict has been fueling recession fears and tempering investors' appetite for perceived riskier assets. Heading into the key event risk, the mixed fundamental backdrop holds back traders from placing aggressive bets around gold and leads to subdued/range-bound price action on the last day of the week.

Technical levels to watch

The South African rand's resilience is likely to be tested in the coming months. Economists at TD Securities expect the USD/ZAR pair to hit 18.00 before easing back lower to 15.90 by the end of the next year.

SARB’s tightening to support the rand

“We think that USD/ZAR will trade as high as 18.00 in Q1 2023, but ultimately the SARB's tightening and steep SAGB curve are supporting factors that will help stem rand weakness.”

“We expect USD/ZAR to end 2023 at 15.90.”

The Dollar Index (DXY) has pulled back after forming interim high near 114.80 last month. Nevertheless, technicals suggest prevalence of upward momentum, with a bounce towards the 114.80 peak again on the cards, economists at Société Générale report.

Only a break under 110.00/109.30 would suggest a risk of deeper pullback 

“Daily RSI is still within bullish territory denoting prevalence of upward momentum.”

“A rebound towards 113.60 and the peak near 114.80 is not ruled out.”

“Only if the support zone at 110.00/109.30 gets violated would there be a risk of a deeper pullback. In such a scenario, next objective could be at September low of 107.60.”

FX option expiries for Oct 7 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

- EUR/USD: EUR amounts        

• 0.9690-00 1.6b
• 0.9730-40 1.29b
• 0.9750-55 1.14b
• 0.9770-75 820m
• 0.9800-10 2.17b
• 0.9845-55 1.98b
• 0.9860 254m
• 0.9870-80 694m
• 0.9900 1.79b
• 0.9915-25 1.84b
• 0.9940-50 1.2b

- GBP/USD: GBP amounts        

• 1.1050 255m
• 1.1150 230m
• 1.1220 255m
• 1.1300 585m
• 1.1400 572m

- USD/JPY: USD amounts                     

• 143.90-00 380m
• 144.55-57 417m
• 145.00 235m

- USD/CHF: USD amounts        

• 0.9900 212m

- AUD/USD: AUD amounts  

• 0.6370 371m
• 0.6545-50 309m
• 0.6535 395m

- USD/CAD: USD amounts       

• 1.3715-20 535m
• 1.3885 900m

- EUR/GBP: EUR amounts        

• 0.8700 1.1b    
• 0.8900 536m

- EUR/CHF: EUR amounts

• 0.9625 260m

EUR/HUF has pushed above 420. Therefore, economists at TD Securities expect the Hungarian National Bank to tighten and drive the pair to 412 by the end of the fourth quarter.

NBH to continue running an FX-driven monetary policy

“We expect the NBH to continue running an FX-driven monetary policy, rather than an inflation-driven one. In essence, hike rates in response to forint weakness rather than upside inflation risks.”

“We think that EUR/HUF will trade in the 400-430 range in Q4 2022, but fall back below 420 and settle at 412 by the end of the quarter.”

In its latest study published on Friday, the European Central Bank (ECB) said, “surging consumer demand across the eurozone is playing an increasing role in excessive inflation.”

Additional takeaways

“Some policymakers have feared - price pressures are becoming more entrenched.”

"Over recent months, supply and demand factors have played broadly similar roles in (underlying) inflation.”

"More recently the contributions of predominantly demand-driven components to services inflation have outweighed those of predominantly supply-driven components.”

Market reaction

The shared currency is unfazed by the above findings, with EUR/USD trading at 0.9807, up 0.21% on the day.

Against the backdrop of elevated price pressures, economists at CIBC Capital Markets expect the Swiss National Bank (SNB) to be increasingly prepared to tolerate a stronger franc.

Additional policy tightening

“In the context of elevated CPI, we can expect the SNB to remain wary of elevated price pressures feeding through into wage demands; this comes as the unemployment rate is at a 20-year low of 2.1%.”

“A central bank keen to bear down on wage growth and an overheated real estate market could prove to be more activist than the ECB, supporting a stronger CHF into 2023.”

“EUR/CHF: Q4 2022: 0.94 | Q1 2023: 0.97”

European Commission President Ursula von der Leyen said on Friday, “the European Union (EU) members now willing to discuss price caps, to discuss how to limit peaks on the energy market.”

“We need to discuss how and where to install price caps,” she added.

Parallelly, Charles Michel, the President of the European Council said that “we need a decision on energy measures as soon as possible.”

Related reads

• EUR/USD regains the smile and flirts with 0.9800, focus on US NFP
• EUR/USD Forecast: US jobs report to determine next short-term direction

10-year US Treasury bond yields experienced a brief down move. But while above 3.50%, the uptrend is set to persist towards 4.00% and even beyond, economists at Société Générale report.

Short-term support aligns at 3.50%

“Daily MACD has dipped below its trigger however signals of an extended pullback are not yet visible.”

“The peak of June near 3.50% remains a short-term support.”

“Holding above 3.50%, 10Y UST is expected to persist with its uptrend towards 4.00% and perhaps even towards the upper limit of a multi month channel near 4.15%/4.20%.”

• USD/CAD meets with some supply on Friday and snaps a two-day winning streak.
• The USD edges lower amid some repositioning trade ahead of the US NFP report.
• The recent bullish run in oil prices underpins the loonie and contributes to the fall.
• The downside seems limited ahead of the key jobs report from the US and Canada.

The USD/CAD pair struggles to capitalize on its gains recorded over the past two trading sessions and comes under some selling pressure on Friday. The pair remains depressed through the first half of the European session and is currently placed near the daily low, just above the 1.3700 round-figure mark.

The US dollar retreats from the vicinity of the weekly high amid some repositioning trade ahead of the closely-watched US monthly jobs data. The Canadian dollar, on the other hand, is underpinned by the overnight hawkish remarks by the Bank of Canada Governor Tiff Macklem and the recent bullish run-up in crude oil prices. This, in turn, is seen exerting downward pressure on the USD/CAD pair, though the downside seems cushioned, at least for the time being.

The OPEC+ decision to slash production by about 2 million bpd - the largest reduction since the 2020 COVID pandemic - continues to act as a tailwind for the black liquid. That said, concerns that a deeper global economic downturn will dent fuel demand keep a lid on any further gains. Adding to this, the prospects for a more aggressive policy tightening by the Fed should limit losses for the greenback and lend some support to the USD/CAD pair.

In fact, the markets seem convinced that the US central bank will continue to hike rates at a faster pace to curb inflation and have been pricing in another supersized 75 bps increase in November. The bets were reaffirmed by the recent hawkish remarks by several Fed officials, which remain supportive of elevated US Treasury bond yields. This, along with recession fears, supports prospects for the emergence of some dip-buying around the safe-haven buck.

Traders might also prefer to wait for the release of the crucial monthly employment details from the US and Canada, due later during the early North American session. Hence, it will be prudent to wait for strong follow-through selling before confirming that this week's solid rebound from the 1.3500 psychological mark has run out of steam and placing fresh bearish bets around the USD/CAD pair.

Technical levels to watch

Economists at CIBC Capital Markets have been USD bulls for a few quarters now. They see little reason to deviate at this point.

USD dominance to fade next year

“We still see a sufficient degree of uncertainty with respect to where the Fed terminal is priced to keep the greenback supported on dips against other major developed market currencies.”

“A weaker backdrop for global demand should continue to buttress the USD via the safe-haven channel. That should show up against the commodity and select EM currency blocs that have been relatively sheltered against hitherto USD strength compared to the funders (like the EUR, and JPY).”

“Next year, we expect market narratives to shift towards an ex-US recovery. But that’s a story for another time.”

Haitham Al Ghais, the new Secretary-General of the Organization of the Petroleum Exporting Countries (OPEC), said on Friday that “oil production capacity freed up by latest output cuts could allow countries to intervene in case of any crisis in oil markets.”

Additional quotes

“The world needs $12 trillion in investments in the oil sector globally.”

“The lack of investments significantly affects global energy supply.”

Market reaction

WTI is off the highs, currently trading at $88.29, modestly flat on the day.

Japan’s top currency diplomat Masato Kanda said on Friday that he “has never felt a limit to ammunition for currency intervention.”

Kanda added, “making various steps so as not to face a limit to ammunition when it comes to FX intervention.”

Market reaction

USD/JPY is extending its retreat from above 145.00 on Japanese verbal intervention. The pair is trading -0.21% on the day at 144.81, as of writing.

GBP/USD dived under 1.12. Economists at ING expect the pair to move back below 1.10 sooner or later.

Cable looks unsustainable above 1.10

“We still deem the pound’s current levels as unsustainable given the fragility in the bond market and the UK’s deteriorated fiscal and current account position.”

“A return to sub-1.10 levels in cable is a question of when rather than if, in our view, and today’s US payrolls may favour a more rapid descent.”

“A potentially fast acceleration in the UK housing market correction has surely become a more relevant theme for the government, and likely another downside risk for the pound.”

Senior Economist at UOB Group Alvin Liew reviews the latest Retail Sales release in Singapore.

Key Takeaways

“Even as Singapore’s retail sales declined by -1.3% m/m in Aug (from 0.7% in Jul), that still translated to a 13.0% y/y expansion for Aug (from 13.9% in Jul), the fifth consecutive month of double-digit growth. Excluding motor vehicle sales, the m/m decrease was more pronounced at -1.8%, (from 0.6% in Jul), translating to a +16.2% y/y increase (from 18.4% y/y in Jul).”

“While the growth fell short of forecast, Aug retail sales growth still added to a solid foundation for domestic demand in 3Q22. While we note that most of the main segments recorded m/m declines in Aug, that could likely be some element of normalisation after the strong post-reopening in Apr (2022) surge from pent-up demand. According to the Department of Statistics Singapore, the y/y increase was attributed to y/y increases recorded in most of the key segments of retail sales.”

“Year-to-date, retail sales grew by 11.2% y/y. We believe domestic retailers will likely see continued domestic and external support, complemented by the return of major events such as the F1 night race, various concerts and BTMICE activities (Business Travel and Meetings, Incentive Travel, Conventions and Exhibitions) attracting tourist arrivals, while the tightening domestic labour market will also contribute to domestic consumption demand. The low base effect is likely to continue to uplift retail sales growth prints in the coming months. Barring the re-emergence of fresh COVID-19 or other health-related risks in Singapore and around the region (leading to re-imposition of social and travel restrictions, which is not our base case), we project retail sales to expand by 8.5% in 2022 (implying a more conservative forecast of around 4% growth in the remaining months of 2022).”

The European Central Bank (ECB) is set to undershoot median rate hike expectations. Furthermore, slower global demand will weigh on growth in the region, pressuring the euro in the fourth quarter, according to economists at CIBC Capital Markets.

Trade unlikely to benefit the eurozone until well into 2023

“The ECB appears intent on taking the deposit rate towards 2.00% into year-end. A cumulative tightening of 125 bps will leave rate spreads still substantially in the favour of the US.”

“Euro real economy headwinds underline that the ECB looks set to undershoot median rate hike expectations. Moreover, weakness in the global economy will mean that trade is unlikely to benefit the eurozone until well into 2023.” 

“While eurozone energy headwinds remain a concern, we also expect markets to remain mindful of the risk of widening BTP-Bund spreads.”

• GBP/USD stages a modest intraday bounce from a multi-day low touched earlier this Friday.
• The USD edges lower amid some repositioning trade ahead of the NFP and offers support.
• Concerns about the UK government’s fiscal plans, recession fears should cap further gains.

The GBP/USD pair reverses an intraday dip to a multi-day low, around the 1.1115 region touched in the last hour and refreshes its daily high during the early European session. The intraday move up lifts spot prices back above the 1.1200 round-figure mark, though lacks bullish conviction.

The US dollar eases a bit from the vicinity of the weekly high and turns out to be a key factor lending some support to the GBP/USD pair. The modest USD downtick could be solely attributed to repositioning trade ahead of the closely-watched US monthly jobs data, due for release later during the early North American session. That said, the prospects for a more aggressive policy tightening by the Fed, along with the prevalent risk-off environment, should limit any meaningful USD pullback.

In fact, market participants seem convinced that the US central bank will continue to hike rates at a faster pace to curb inflation and have been pricing in another supersized 75 bps increase in November. This remains supportive of elevated US Treasury bond yields. Meanwhile, concerns that rapidly rising borrowing costs will lead to a deeper global economic downturn tempers investors' appetite for riskier assets. The anti-risk flow should lend some support to the safe-haven greenback.

Furthermore, concerns about the UK government's fiscal policy and looming recession risks could also contribute to capping the upside for the GBP/USD pair. UK Prime Minister Liz Truss defended the tax-cut plan on Wednesday and said that cutting taxes is the right thing to do morally and economically. The fiscal package is expected to derail the Bank of England's efforts to contain high inflation and force it to turn more hawkish, which, in turn, would create additional economic headwinds.

The aforementioned fundamental backdrop warrants caution for aggressive traders and before positioning for any further appreciating move for the GBP/USD pair. Investors might also prefer to move to the sidelines and wait for the release of the US NFP report. The US labour market data will play a key role in Influencing Fed rate hike expectations and driving the USD demand in the near term. This, in turn, should allow traders to grab short-term opportunities around the major.

Technical levels to watch

• EUR/USD bounces off earlier lows in the vicinity of 0.9760.
• Germany Retail Sales contracted 4.6% in the year to August.
• Markets’ attention will be on the release of US Payrolls.

Following an early drop to the 0.9765/60 region, EUR/USD manages to regain some upside traction and return to the 0.9800 neighbourhood on Friday.

EUR/USD now looks to the US calendar

EUR/USD attempts a mild recovery against the backdrop of a knee-jerk in the dollar, while market participants remain prudent in light of the upcoming release of the US Nonfarm Payrolls for the month of September (250K exp).

The small bounce in spot also comes along another positive move in the German 10-year bund yields, which already retake the 2.15% region amidst the third consecutive daily advance.

Earlier in the session, Germany’s Retail Sales contracted 4.6% YoY in August and Industrial Production dropped 0.8% vs. the previous month.

What to look for around EUR

EUR/USD appears to have met a decent contention in the 0.9760 zone so far on Friday and ahead of key data releases in the US docket.

In the meantime, price action around the European currency is expected to closely follow dollar dynamics, geopolitical concerns and the Fed-ECB divergence. The latter has been exacerbated further following the latest rate hike by the Fed and the persevering hawkish message from Powell and the rest of his rate-setters peers.

Furthermore, the increasing speculation of a potential recession in the region - which looks propped up by dwindling sentiment gauges as well as an incipient slowdown in some fundamentals – adds to the sour sentiment around the euro

Key events in the euro area this week: Germany Retail Sales. Industrial Production (Friday).

Eminent issues on the back boiler: Continuation of the ECB hiking cycle. Italian post-elections developments. Fragmentation risks amidst the ECB’s normalization of its monetary conditions. Impact of the war in Ukraine and the persistent energy crunch on the region’s growth prospects and inflation outlook.

EUR/USD levels to watch

So far, the pair is gaining 0.11% at 0.9801 and the breakout of 0.9999 (weekly high October 4) would target 1.0013 (55-day SMA) en route to 1.0050 (weekly high September 20). On the flip side, the initial support comes at 0.9535 (2022 low September 28) ahead of 0.9411 (weekly low June 17 2002) and finally 0.9386 (weekly low June 10 2002).

Jobs data will be published in Canada, but the implications for the Bank of Canada (BoC) policy should be limited, in the view of economists at ING. USD/CAD is set to react more substantially to US Nonfarm Payrolls, thus, the risks are skewed to the upside.

BoC to stay hawkish despite jobs jitter

“BoC’s governor Tiff Macklem delivered some quite hawkish remarks as he claimed the Bank is not ready for a more finely balanced policy, that there is still plenty to be done to curb inflation given lingering excess demand and largely accepting the prospect of a quite hard landing for the economy. In this sense, yesterday’s comments may have worked as a ‘hedge’ against another potential job data disappointment today. 

“We expect the US payrolls impact on USD to be larger than Canada’s jobs data impact on CAD, and see USD/CAD upside risks today even if Canada’s figures come in positive.”

“A re-test of the 1.3830 highs in USD/CAD is a material risk over the coming weeks.”

See: 

• NFP Preview: Forecasts from nine major banks, employment trend slows down
• Canadian Jobs Preview: Forecasts from six major banks, employment to rise but outlook is dimming

• The index comes under some selling pressure near 112.50.
• US yields continue their march north to multi-session peaks.
• Nonfarm Payrolls and the Unemployment Rate will take centre stage later.

The greenback, in terms of the USD Index (DXY), meets a decent resistance region in the 112.50 at the end of the week.

USD index focuses on data

The index now slips back to the 112.00 neighbourhood and trades slightly on the defensive amidst some recovery in the risk complex and broad-based cautiousness ahead of the release of September’s Nonfarm Payrolls later in the NA session.

The results from the job creation during last month has grown in importance in past sessions, as it could determine the size of the next rate hike by the Fed and probably give a hint regarding the probable extension of the normalization process.

Other than Payrolls, the Unemployment Rate is due along with Wholesale Inventories, Consumer Credit Change and the speech by NY Fed J.Williams (permanent voter, centrist).

 What to look for around USD

The index managed to advance to the 112.50 region, where it seems to have met some decent hurdle for the time being.

While the near-term outlook for the dollar looks somewhat dented, the firmer conviction of the Federal Reserve to keep hiking rates until inflation looks well under control regardless of a likely slowdown in the economic activity and some loss of momentum in the labour market continues to prop up the underlying positive tone in the index.

Looking at the more macro scenario, the greenback also appears bolstered by the Fed’s divergence vs. most of its G10 peers in combination with bouts of geopolitical effervescence and occasional re-emergence of risk aversion.

Key events in the US this week: Nonfarm Payrolls, Unemployment Rate, Consumer Credit Change, Wholesale Inventories (Friday).

Eminent issues on the back boiler: Hard/soft/softish? landing of the US economy. Prospects for further rate hikes by the Federal Reserve vs. speculation of a recession in the next months. Geopolitical effervescence vs. Russia and China. US-China persistent trade conflict.

USD Index relevant levels

Now, the index is losing 0.08% at 112.16 and a breach of 110.05 (weekly low October 4) would open the door to 109.35 (weekly low September 20) and finally 107.68 (monthly low September 13). On the other hand, the next up barrier emerges at 114.76 (2022 high September 28) seconded by 115.00 (round level) and then 115.32 (May 2002 high).

Economist at UOB Group Ho Woei Chen, CFA, comments on the latest inflation figures in South Korea and the upcoming BoK event.

Key Takeaways

“South Korea’s headline inflation edged lower to 5.6% y/y in Sep, signalling it has likely peaked at more than two-decade high in Jul (6.3% y/y) as oil prices eased. However, core inflation rebounded to 4.5% y/y which keeps concerns on the second-round effects from a potential wage-price spiral.”

“The trajectory remains for headline inflation to stay in the 5%-6% y/y range in the next few months until 1Q23, averaging around 5.2% and 3.5% for 2022 and 2023 respectively.”

“Market’s expectation is gravitating towards a larger move by the BOK next week (12 Oct) amidst high domestic inflation and a more hawkish posturing from the US Fed. While we see a 25bps hike in the 7-day repo rate to 2.75% on 12 Oct as the base case, the prospect of a more aggressive 50 bps hike to 3.00% has increased.”

“Thus, the odds are certainly tilted towards a higher terminal interest rate than our current forecast of 3.00% as BOK is likely to hike further in Nov (last meeting of 2022) and even into 1Q23 if inflation does not cool as fast as it hoped. We will get a better sense of that from BOK’s post-decision press conference next week.”

“South Korea’s advance 3Q22 GDP is due on 27 Oct. Further recovery in private consumption on the back of normalizing activities and an improving labour market will help to make up for slowing momentum in exports and investments. However, GDP growth is still expected to moderate. Our forecast is at 0.1% q/q, 2.8% y/y for 3Q from 0.7% q/q, 2.9% y/y in 2Q22.”

US Jobs data is in focus today. But with the Federal Reserve set to stay hawkish, the US dollar is unlikely to weaken on a soft Nonfarm Payrolls report, economists at MUFG Bank report.

Jobs data unlikely to alter Fed’s path

“So with the Fed seeing evidence of success, we should not expect a shift in rhetoric no matter what the NFP print is today. That in our view means the US dollar will remain under upward pressure.”

“Any US dollar weakness on a weak NFP print that fuels easing expectations next year is in our view unlikely to last. A further tightening of financial conditions lies ahead and so too further dollar strength.”

See – NFP Preview: Forecasts from nine major banks, employment trend slows down

• AUD/USD reverses an intraday dip to a multi-day low, though lacks any follow-through.
• Aggressive Fed rate hike bets should act as a tailwind for the USD and cap the upside.
• Investors now look forward to the crucial US NFP report for a fresh directional impetus.

The AUD/USD pair drops to over a one-week low on Friday, albeit manages to bounce back above the 0.6400 mark during the early European session. Any meaningful recovery, however, still seems elusive amid the underlying bullish sentiment surrounding the US dollar.

In fact, the USD Index - which measures the greenback's performance against a basket of currencies - climbs to the top end of its weekly range amid hawkish Fed expectations. Investors seem convinced that the US central bank will stick to its aggressive policy tightening path to tame inflation and have been pricing in another supersized 75 bps rate hike in November. The bets were reaffirmed by several FOMC officials, reiterating that policymakers remain committed to bringing inflation under control.

This, in turn, remains supportive of elevated US Treasury bond yields, which, along with worries about a deeper global economic downturn, continue to underpin the safe-haven buck. The Australian dollar, on the other hand, is weighed down by the Reserve Bank of Australia's (RBA) decision to slow the pace of policy tightening and raise interest rates by 25 bps earlier this week. This, in turn, favours bearish traders and suggests that the path of least resistance for the AUD/USD pair is to the downside.

Market participants, however, seem reluctant to place aggressive bearish bets around the AUD/USD pair and prefer to move to the sidelines ahead of the closely-watched US monthly jobs report. The popularly known NFP report is due for release later during the early North American session and will influence Fed rate hike expectations and determine the near-term trajectory for the buck. In the meantime, some repositioning trade might infuse volatility and provide some impetus to the major.

Technical levels to watch

EUR/USD has broken back below 0.9800. Economists at ING expect the world’s most popular currency pair to extend its decline towards the 0.95-0.96 area in the short-term.

Downtrend has further to go

“Today, as we see upside risks for the dollar after the payrolls release, another leg lower in EUR/USD is our base case.”

“We currently expect the downtrend in the pair will extend to the 0.95-0.96 area in the very near-term, and to the 0.90-0.94 area by year-end.”

See – NFP Preview: Forecasts from nine major banks, employment trend slows down

Irish Foreign Minister Simon Coveney said on Friday, “I had a very good meeting with the UK foreign secretary cleverly on (Northern Ireland) protocol.”

Additional quotes

“A new air of positivity has created a flicker of optimism.”

“We do not think we should get carried away with warm language, but the new UK government up for serious discussion.”

Earlier this week, Coveney said: "It remains to be seen whether this new look British government is willing to make compromises to get a deal done but certainly the mood music has changed quite fundamentally, we welcome that and we will work on not only relationships to rebuild trust but also work on solutions in a practical way."

Market reaction

GBP/USD is catching a fresh bid on the renewed Brexit optimism, with the pair closing in on the 1.1200 barrier. The spot is up 0.24% on the day.

GBP/USD traded at an all-time low of 1.0350. The pair has staged a substantial recovery but economists at CIBC Capital markets expect cable to ease back lower towards 1.08 by the end of the year.

Lack of fiscal credibility and a more aggressive BOE tightening bias underlines ongoing GBP headwinds

“The lack of fiscal credibility, allied to a more aggressive Bank of England tightening bias into 2023, dragging on growth, (the UK terminal rate is now set to be above 4%) underlines ongoing GBP headwinds.”

“As the BoE has been forced to come in to stabilize a material dislocation in the fixed income space, we would expect that the currency will continue to be the broad pressure release valve amidst ongoing fiscal and political pressures. Hence, the recent GBP rally is likely to soon stall, leaving open the risk of a re-test of 1.08 prior to year-end.”

CME Group’s flash data for natural gas futures markets note open interest shrank by just 441 contracts on Thursday after three daily builds in a row. On the flip side, volume resumed the uptrend and rose by around 63.8K contracts.

Natural Gas looks to surpass $7.00 on a convincing fashion

Prices of natural gas briefly surpassed the $7.00 mark per MMBtu on Thursday, although they closed below that level with modest gains and amidst a small drop in open interest. That said, a probable corrective downside is in the offing and with the $6.50 region expected to offer decent support.

The dollar rebound has gained further steam into today’s Nonfarm Payrolls risk event. According to economists at ING, NF P may add fuel to the dollar recovery.

Staying bid on payrolls

“We expect the unemployment rate to stay at 3.7% with payrolls slowing but staying above 200K. We think the dollar rally in the past two sessions was simply a reversal of the previous correction, and not necessarily linked to rising expectations around a very strong jobs report today.”

“We see more room for USD appreciation today after the payrolls release as markets drift further away from Fed-pivot speculation.”

“DXY could find its way back into the 113.00-114.00 region.”

See NFP Preview: Forecasts from nine major banks, employment trend slows down

Governor Macklem doubled down on the Bank of Canada's commitment to its inflation target in Thursday's speech. Macklem's hawkish remarks do not bode well for the CAD, in the view of economists at TD Securities.

USD/CAD dips should be bought

“Governor Macklem pushed back against a dovish pivot. Macklem downplayed the recent improvement in headline CPI and global inflation pressures and put more emphasis on domestic factors and core inflation strength. He also repeated that long-term inflation expectations are at risk and that it was too soon to warrant a ‘decision-by-decision’ approach to rate hikes.”

“Macklem's comments should reinforce execrations for a 50 bps rate hike at the October meeting, but we are reluctant to extrapolate them much further given the short shelf-life of central bank comments in this environment, especially with economic data starting to cool. We continue to look for a 4.25% terminal rate.”

“Governor Macklem put on a bit of tough talk, though he did not do a very good job at sounding all that convincing. It sounds like even though they are not yet willing to ‘pivot’, that it may not be far away. Another anchor of any sort of CAD support has chipped away.”

“We are even stronger believers that USD/CAD dips should be bought. 

“Currently, we look for 1.40 this year, but this does not necessarily mean it will be a ceiling.”

• NZD/USD drifts lower for the second straight day amid some follow-through USD buying.
• Aggressive Fed rate hike bets and elevated US bond yields act as a tailwind for the buck.
• Recession fears further weigh on the risk-sensitive kiwi ahead of the key US NFP report.

The NZD/USD pair remains under some selling pressure for the second straight day on Friday and extends the overnight sharp pullback from a nearly two-week high. The pair remains depressed through the early European session and is currently placed near a multi-day low, around the 0.5630-0.5635 region.

The US dollar buying remains unabated on the last day of the week amid growing acceptance that the Fed will continue to tighten its monetary policy at a faster pace to curb inflation. In fact, the markets have been pricing in another supersized 75 bps rate increase at the next FOMC meeting in November. The bets were reaffirmed by the recent hawkish comments by several Fed officials, which remain supportive of elevated US Treasury bond yields and continue to act as a tailwind for the greenback.

Apart from this, the prevalent risk-off environment lifts the safe-haven buck back closer to the weekly high and further contributes to driving flows away from the risk-sensitive kiwi. The market sentiment remains fragile amid concerns about economic headwinds stemming from rapidly rising borrowing costs. Adding to this, the risk of a further escalation in the Russia-Ukraine conflict has been fueling recession fears. This, in turn, continues to temper investors' appetite for riskier assets.

The fundamental backdrop suggests that the path of least resistance for the NZD/USD pair is to the downside. Traders, however, seem reluctant to place aggressive bets and might prefer to move to the sidelines ahead of the closely-watched US monthly jobs data, due for release later during the early North American session. The popularly known NFP report will influence Fed rate hike expectations, which, in turn, will drive the USD in the near term and provide a fresh impetus to the major.

Technical levels to watch

The FOMC and Chair Powell delivered a hawkish approach to policy in September, raising the fed funds rate by 75 bps and signalling another 150 bps of tightening to the end of this cycle. In the view of economists at Westpac, FOMC’s fight against inflation is set to come at material cost.

Fed funds rate to a peak at 4.625% in January 2023

“Chair Powell and the FOMC look set to hike rates another 150 bps before this cycle concludes, lifting the fed funds rate to a peak of 4.625%, with a likely timing of January 2023.”

“Their fight against inflation will come at a significant cost to the economy, particularly as the fed funds rate is expected to remain on hold through 2023.”

“We anticipate an output gap of 4% by end-2024 and for the unemployment rate to be 2ppts higher, containing price pressures and allowing the FOMC to ease policy in 2024.”

The European Central Bank (ECB) is set to continue behind the Federal Reserve in tightening. Therefore, economists at the National Bank of Canada expect the euro to remain under pressure.

Euroarea is postured fore recession

“The ECB is still behind the Fed in tightening and could be limited as the common currency area is postured for a recession.”

“We expect that the euro will remain weak until it becomes clear that the Fed will start easing on monetary policy. As such, euro could see some limited upside in the middle of 2023.”

Here is what you need to know on Friday, October 7:

The dollar stays resilient against its major rivals early Friday as investors gear up for the highly-anticipated Nonfarm Payrolls report for September. The US Dollar Index moves up and down in a narrow range above 112.00 following a two-day rebound, the 10-year US Treasury bond yield holds above 3.8% and US stock index futures trade flat early Friday. During European trading hours, the Bank of England (BoE) will release its Quarterly Bulletin for the third quarter and Statistics Canada will also publish the September jobs report.

Nonfarm Payrolls Preview: Five scenarios for trading King Dollar as markets plead for pain.

On Thursday, the greenback found demand as a safe haven amid a souring market and continued to outperform its rivals. Additionally, hawkish comments from Fed officials helped the currency preserve its strength. Minneapolis Fed President Neel Kashkari said that the Fed was "quite a ways away" from a pause in policy tightening and Fed Governor Christopher Waller reiterated that he was expecting further aggressive rate hikes in the battle against inflation. 

Meanwhile, US Secretary of State Antony Blinken said on Thursday that they were looking at options to respond to Saudi Arabia following the OPEC+ decision to significantly reduce crude oil production. Although the barrel of West Texas Intermediate (WTI) is trading in negative territory slightly above $88, it is up more than 10% on a weekly basis.

After having moved sideways near 0.9800 in the Asian session, EUR/USD came under modest bearish pressure and turned negative on the day below 0.9780. The data from Germany revealed that Retail Sales and Industrial Production contracted by 1.3% and 0.8% on a monthly basis in August, making it difficult for the shared currency to find demand. 

GBP/USD lost nearly 200 pips on Thursday and close below 1.1200. The pair continues to stretch lower early Friday and was last seen trading at around 1.1130. The UK and EU restarted Northern Ireland Protocol negotiations on Thursday. Commenting on the latest developments, Irish Foreign Minister Simon Coveney said that he was not expecting to reach an agreement by October 28. "I do think we can make significant progress on some of the issues that really matter to the people of Northern Irelan," Coveney added. "In particular to the unionist community and the business community."

Gold's losses remained limited on Thursday as the benchmark 10-year US Treasury bond yield struggled to gather bullish momentum after rising above 3.8%. XAU/USD stays relatively quiet at around $1,710 early Friday. 

US September Nonfarm Payrolls Preview: Analyzing gold's reaction to NFP surprises.

USD/JPY edged higher on Thursday and closed above 145.00. "Recent sharp, one-sided yen moves are undesirable,” Japanese Prime Minister Fumio Kishida repeated earlier in the day. “Japan's intervention last month reflected the view that we cannot turn a blind eye to speculative FX moves.” The pair is moving sideways near 145.00 after these comments.

Bitcoin pushed lower amid risk aversion on Thursday and lost nearly 1%. BTC/USD was last seen posting small daily losses at $19,850. Ethereum closed unchanged on Thursday and seems to be having a tough time making a decisive move in either direction early Friday while holding above $1,300.

Russia is maintaining a very high level of revenue for its oil, natural gas and coal exports. But this does not protect Russia’s economy for four reasons, analysts at Natixis report.

Russia is suffering heavily from international sanctions

“As a result of the embargo on Western products, Russian imports have fallen markedly: Russia’s foreign currency revenues cannot be used to buy goods and services.”

“The departure of Western companies and the embargo on technology imports have led to a sharp decline in the production of certain goods and services; the effects of the embargo will worsen over time.”

“Inflation is high and household consumption is declining sharply.”

“The cap that Western countries will put on the price of Russian oil will reduce the price of oil in markets where countries still buy it.”

The September labour market data for Canada will be published later in the day. In the view of economists at Commerzbank, the loonie is set to remain under pressure amid continued divergence in rate expectations between the Bank of Canada and the Federal Reserve.

Little hope of the loonie making up ground against USD

“The combination of a strong US labour market and weak labour market data for Canada would probably cause the rate hike expectations for the two central banks to diverge further, driving USD/CAD upwards.”

“The market is likely to lower its rate hike expectations in case of a weak labour market report. In case of a positive labour market surprise, it is likely to adjust them to the upside. However, it seems unlikely to us that the expectations are likely to catch up with those for Fed rate hikes, in particular as we expect a solid US labour market report.”

“We continue to see little hope of the loonie making up ground against USD today in view of a continued divergence in rate expectations, instead it is more likely to record losses.”

See: 

• NFP Preview: Forecasts from nine major banks, employment trend slows down
• Canadian Jobs Preview: Forecasts from six major banks, employment to rise but outlook is dimming

NZD/USD is lower, sinking back to the mid-0.56s. Economists at Bank of America target the pair at 0.56 by year-end.

NZD to underperform AUD

“We revise down our end-2022 forecast for NZD/USD to 0.56 (previously 0.65) with recent developments making a return to the 0.60s unlikely in 2022. Poor global economic and financial conditions suggest a move below our year-end forecast is likely in the near term.”

“We continue to expect NZD to underperform AUD, the latter better poised to benefit from China’s easing in commodity-intensive sectors.”

• USD/JPY struggles to gain any meaningful traction and oscillates in a range on Friday.
• Speculations that Japanese authorities might intervene in the markets cap the upside.
• The underlying USD bullish sentiment acts as a tailwind ahead of the US NFP report.

The USD/JPY pair fails to capitalize on its gains recorded over the past two trading sessions and oscillates in a narrow range through the early European session on Friday. The pair is currently placed around the 145.00 psychological mark and remains at the mercy of the US dollar price dynamics.

Growing acceptance that the Fed will stick to a more aggressive rate hiking cycle to tame inflation continues to act as a tailwind for the greenback and the USD/JPY pair. In fact, the markets have been pricing in another supersized 75 bps Fed rate hike move in November. The bets were reaffirmed by the recent hawkish comments by several Fed officials, reiterating that the US central bank remains committed to bringing inflation under control.

Furthermore, the widening of the US-Japan rate differential is seen weighing on the Japanese yen and offering support to the USD/JPY pair. The prospects for a faster policy tightening by the Fed remain supportive of elevated US Treasury bond yields. In contrast, the Bank of Japan remains committed to keeping JGB yields at low levels. That said, intervention fears hold back bulls from placing fresh bets and capping gains for the major.

Japanese Prime Minister Kishida talked about the weakness in the domestic currency and said that the recent sharp, one-sided yen moves are undesirable. Kishida added that the intervention last month reflected the view that we cannot turn a blind eye to speculative FX moves. This comes after Japan's finance minister Shunichi Suzuki said on Monday that the government stands ready to intervene in markets to prevent deeper losses in JPY.

Market participants also seem reluctant and prefer to move to the sidelines ahead of the crucial US monthly employment details, due for release later during the early North American session. The popularly known NFP report will influence Fed rate hike expectations. This, in turn, will play a key role in determining the near-term trajectory for the buck and provide a fresh directional impetus to the USD/JPY pair.

Technical levels to watch

The question is whether the Federal Reserve would continue to sound so hawkish if the labour market was not as strong any longer. In the view of economists at Commerzbank, Nonfarm Payrolls due out later in the day are unlikely to provide any cause for concern for now.

There are no real alternatives to the dollar

“Today’s data is unlikely to provide any cause for concern for now. The momentum is likely to have eased a little but the labour market is likely to be sufficiently tight for the Fed to stick to its plan of continuing to hike interest rates significantly.”

“If the NFP report disappoints, the reaction of the Fed members would be decisive. If the rhetoric does not change, there is no reason initially to trade USD weaker. In particular, as there are no real alternatives to the dollar at present, as we had previously explained in this publication.”

“September consumer price data is due for publication next week. If there is no improvement on the price front, the Fed is likely to stick to its hawkish communication even if the labour market today were to disappoint. Against this background, USD is likely to remain supported for now.”

See – NFP Preview: Forecasts from nine major banks, employment trend slows down

The European Central (ECB) is likely to continue hiking its key rate significantly. However, the euro is set to continue its decline as energy crisis weighs on the shared currency, economists at Commerzbank report.

Sustainably higher levels are likely to remain difficult

“Monetary policy is unlikely to provide any support for EUR over the coming weeks as a 75 bps rate hike is more or less priced in for the next meeting.”

“The risk is more likely to be that the ECB will be more cautious than the market is expecting after all. In that case EUR would probably come under depreciation pressure. Even though we do not expect such a scenario, the market is likely to consider this risk in its evaluation of the EUR exchange rates.”

“Sustainably higher EUR-levels are likely to remain difficult in this environment. On the contrary, we continue to see the risk that EUR will weaken further as the energy crisis as a factor for uncertainty will continue to put pressure on the single currency.”

• Gold prices are oscillating in a $4 range ahead of the US NFP data.
• The extent of the US NFP data will guide the further direction of gold prices.
• The DXY is trading lackluster despite soaring hawkish Fed bets.

Gold price (XAU/USD) is displaying topsy-turvy moves in a narrow range of $1,709.35-1,713.42 in the early European session. The precious metal is displaying a lackluster performance as the focus has shifted to the US Nonfarm Payrolls (NFP) data. At the press time, the yellow metal is attempting to deliver an upside break, however, the yields are defending the signs of the upside momentum loss, which could cap gains in gold prices. The 10-year US Treasury yields have recaptured the hurdle of 3.83%.

The mega event of the US NFP will prove a decisive direction ahead. As per the consensus, the US economy added 250k jobs in September. Wednesday’s release of the US Automatic Data Processing (ADP) Employment data reported an increment in payrolls by 208k. This indicates that the US NFP could release lower than projections. Apart from that, the Unemployment Rate is seen constant at 3.7%.

Meanwhile, the US dollar index (DXY) is continuously failing to sustain above the critical hurdle of 112.20 despite soaring hawkish bets for a fourth consecutive 75 basis points (bps) rate hike by the Federal Reserve (Fed). As per CME Fedwatch tool, chances of a 75 bps rate hike announced have soared above 73%.

Gold technical analysis

On a four-hour scale, the gold prices are oscillating around the 50% Fibonacci retracement (placed from an August 10 high at $1,807.93 to September low at $1,614.85) at $1,711.60. The precious metal has corrected to near the 20-period Exponential Moving Average (EMA) at around $1,709.00 after sensing barricades around $1,730.00.

The Relative Strength Index (RSI) (14) has slipped into the 40.00-60.00 range from the bullish range of 60.00-80.00, which signals a loss in the upside momentum.

Gold four-hour chart

Gold price is above the $1,700 mark on the week's final trading day. Will XAU/USD chart a bull pennant? FXStreet’s Dhwani Mehta analyzes the pair’s technical picture.

XAU/USD needs acceptance above the 50-Daily Moving Average

“Buyers need a decisive break above the powerful resistance at around $1,722 to confirm the bullish continuation pattern. That level is the confluence of the 50 DMA and the falling trendline resistance. The next relevant upside targets are aligned at the $1,730 round figure and the September high of $1,735, above which doors open up for a fresh uptrend towards the $1,750 psychological level.”

“Daily closing below the rising trendline support at $1,707 will invalidate the bull pennant, allowing bears to flex their muscles towards the previous critical resistance now cushion at $1,700 before approaching the weekly low of $1,695. Deeper declines will expose the horizontal 21 DMA at $1,681, which will be the line in the sand for XAU bulls.”

• German Retail Sales arrived at -4.3% YoY in August vs. -5.6% expected.
• Retail Sales in Germany stood at -1.3% MoM in August vs. -1.0% expected.

Germany's Retail Sales fell by 1.3% MoM in August versus -1.0% expected and 1.9% previous, the official figures released by Destatis showed on Friday.

On an annualized basis, the bloc’s Retail Sales came in at -4.3% in August versus the -5.1% expected and a 2.6% drop recorded in July.

FX implications

The euro is little changed on the mixed German data. At the time of writing, the major trades at 0.9793, up 0.07% so far.

About German Retail Sales

The Retail Sales released by the Statistisches Bundesamt Deutschland is a measure of changes in sales of the German retail sector. It shows the performance of the retail sector in the short term. Percent changes reflect the rate of changes of such sales. The changes are widely followed as an indicator of consumer spending. Positive economic growth is usually anticipated as "bullish" for the EUR, while a low reading is seen as negative, or bearish, for the EUR.

Industrial Production in Germany dropped more than expected in August, the official data showed on Friday, suggesting that the manufacturing sector activity has lost momentum.

Eurozone’s economic powerhouse’s industrial output fell by 0.8% MoM, the federal statistics authority Destatis said in figures adjusted for seasonal and calendar effects, vs. a -0.5% expected and -0.3% last.

On an annualized basis, German industrial production increased by 2.1% in August versus a -1.1% drop booked previously.

FX implications

The shared currency remains unperturbed by the mixed German industrial figures.

At the time of writing, EUR/USD is trading around 0.9800, modestly flat on the day.

About German Industrial Production

The Industrial Production released by the Statistisches Bundesamt Deutschland measures the outputs of German factories and mines. Changes in industrial production are widely followed as a major indicator of strength in the manufacturing sector. A high reading is seen as positive (or bullish) for the EUR, whereas a low reading is seen as negative (or bearish).

Canada will release September employment figures on Friday, October 7 at 12:30 GMT and as we get closer to the release time, here are forecasts from economists and researchers at six major banks regarding the upcoming employment data. 

Consensus sees 20K jobs added vs. -39.7K in August, while the unemployment rate is expected to remain steady at 5.4%.

NBF

“We expect a rebound in employment after the losses recorded in June (-43K), July (-31K) and August (-40K). Our call is for a 20K increase. Despite this gain, the unemployment rate could increase from 5.4% to 5.5%, assuming the participation rate rose one tick to 64.9% and the working-age population grew at a strong pace.”

RBC Economics

“Canadian employment likely edged higher in September after three straight monthly declines. But as monetary tightening continues, that bump isn’t likely to last. The 40K drop in employment in August was largely due to a sharp 50K pullback in education employment numbers. Those seasonal distortions are expected to fade in September, fueling a 15K increase in overall employment.”

CIBC

“The 35K increase in total jobs expected for September would offset only around a third of the combined jobs lost over the prior three months. Assuming a slowdown in monthly population growth relative to August’s brisk pace, as well as a slight reduction in participation, the job gain expected would take the jobless rate down to 5.2% – historically low but still above the 4.9% mark seen in June and July.”

ING

“The jobs market has wobbled of late with employment falling for three consecutive months after some very vigorous increases earlier in the year. We are hopeful of stabilisation in Friday’s September report given the economy is still performing relatively well, but if we are wrong and we get a fourth consecutive fall then expectations for Bank of Canada tightening could be scaled back somewhat – especially after some softer than anticipated CPI prints. We are currently forecasting a 50 bps rate hike at the October BoC policy meeting with a final 25 bps hike in December.”

TDS

“We look for Canadian employment to rise by 45K in September, helped by a sharp rebound for education after a large one-off decline in August. Outside education things look less upbeat, with little underlying momentum and further weakness in the goods-producing industries. Wage growth should hold at 5.6% YoY, while the unemployment rate should edge back to 5.2%.”

Citibank

“Canada Net Change in Employment – Citi: -5K, prior: -39.7K; Unemployment Rate – Citi: 5.6%, prior: 5.4%; Hourly Wage Rate Permanent Employees – Citi: 5.6%, prior: 5.6%. The recent consistent string of job losses in Canada is expected to continue in September. In the last report for August, the ~40K decline in employment with a 0.5pp rise in the unemployment rate seemed more related to moderating labor demand. Still, it may be too soon to see sustained job losses as a result of factors like tighter monetary policy acting to cool demand – that’s more likely around the middle of next year.”

• Silver edges higher on Thursday, though lacks any follow-through buying.
• The set-up favours bullish traders and supports prospects for further gains.
• Any fall towards the $20.00 mark could still be seen as a buying opportunity.

Silver sticks to a mildly positive bias through the first half of trading on Thursday and is currently placed around the $20.75-$20.80 region, up over 0.40% for the day.

Given the recent breakout through a multi-month-old descending trend-line hurdle and a sustained move beyond the 100-day SMA, the bias remains tilted in favour of bullish traders. The latter helped limit the intra-week pullback from the highest level since late June and the subsequent bounce adds credence to the near-term positive outlook.

Furthermore, technical indicators on the daily chart are holding comfortably in the bullish territory and are still far from being in the overbought zone. This, in turn, supports prospects for an extension of the recent rally from sub-$18.00 levels and a move back above the $21.00 mark, towards retesting the monthly top near the $21.25 region.

Some follow-through buying has the potential to lift the XAG/USD towards a technically significant 200-day SMA, currently just ahead of the $22.00 round figure. The said handle should act as a pivotal point for short-term traders, which if cleared decisively would set the stage for a further near-term appreciating move.

On the flip side, the overnight swing low, around the $20.35 region, might now protect the immediate downside ahead of the $20.00 mark (100 DMA). Any further decline could be seen as a buying opportunity and remain limited near the descending trend-line resistance breakout point, around the $19.55 area, coinciding with the 50-day SMA.

Silver daily chart

Key levels to watch

Open interest in crude oil futures markets rose for the third consecutive session on Thursday, this time by more than 9K contracts considering advanced prints from CME Group. On the other hand, volume went down sharply by around 265.2K contracts after three daily builds in a row.

WTI: Next target emerges at the $90.00 mark

Prices of the WTI extended the upside for the fourth straight session on Thursday. The move was on the back of rising open interest, allowing for further advances in the very near term. The sharp drop in volume, however, could slow the pace of the move, while  the commodity continues to target the $90.00 mark per barrel and beyond.

UOB Group’s Senior Economist Julia Goh and Economist Loke Siew Ting assess the recently published inflation figures in Philippines.

Key Takeaways

“Headline inflation reverted higher to 6.9% y/y in Sep, affirming our view that the blip in Aug (at 6.3% vs 6.4% in Jul) was temporary. It marked the highest reading since Oct 2018, in line with our estimate (7.0%) and Bloomberg consensus (6.9%). Costlier food, electricity bills, passenger transport services and housing rental were key factors pushing up headline inflation amid a sharp depreciation in Peso (PHP) and higher interest rates during the month.”

“We expect the national consumer price pressures to intensify further and surpass the 7.0% level in Oct as a result of an approved fare hike for public transports from 3 Oct and persistent weakness in PHP. Based on the current global commodity price and currency outlook, the Philippines’ headline inflation is also expected to remain above 7.0% for Nov and Dec this year before gradually inching down back to the BSP’s 2.0%-4.0% medium-term target range in 2H23. This will result in a full-year inflation rate of 5.5% for 2022 (BSP est: 5.6%) and 4.5% for 2023 (BSP est: 4.10%), in our projection.”

“Given that BSP’s primary goal is to achieve a target-consistent inflation path amid an even faster pace of Fed tightening, we stick to the view that BSP will roll up its sleeves to hike again at the two remaining monetary policy meetings this year. We project the overnight reverse repurchase (RRP) rate to be raised by another 50bps in Nov and 25bps in Dec, bringing the RRP rate to 5.00% by year-end. Thereafter, we expect the BSP to press the rate pause button at 5.00% through 2023 unless the global and domestic landscape warrants a change.”

• A formation of a bullish flag is setting a base for recording fresh two-year highs around 1.4000.
• Market sentiment has turned negative which supports the greenback’s appeal.
• The RSI (14) is aiming to enter into the bullish range of 60.00-80.00.

The USD/CAD pair has rebounded firmly after hitting an intraday low of 1.3726 in the Tokyo session. The asset is oscillating around 1.3750, at the press time, and is expected to overstep the same confidently as the market sentiment has turned extremely sour amid soaring hawkish Federal Reserve (Fed) bets. Also, the S&P500 has eased off its entire gains recorded in the Tokyo session.

On a four-hour scale, the asset is forming a Bullish Flag pattern that signals an impulsive bullish wave after the breakout of the consolidation. Usually, the consolidation phase indicates a most auctioned region where those investors place bets who prefers to enter an auction after the establishment of an upside bias. Also, investors add more longs as they see a continuation of the uptrend after a time-corrective pause.

It is worth noting that the 20-and 50-period Exponential Moving Averages (EMAs) have defended their bearish crossover at around 1.3600, which indicates that the upside is intact.

Meanwhile, the Relative Strength Index (RSI) (14) is attempting to cross the 60.00 figure for a sheer bullish momentum.

Should the asset break above the previous week’s high at 1.3833, the greenback bulls will expose the asset to hit a fresh two-year high at 1.4000. A breach of the latter will drive the major towards May 2020 high at 1.4173.

On the contrary, a decisive break below the round-level support placed at 1.3600 will drag the asset towards the psychological support at 1.3500, followed by September 19 high at 1.3344.

USD/CAD four-hour chart

According to preliminary readings from CME Group for gold futures markets, open interest rose by just 440 contracts on Thursday after two consecutive daily pullbacks. Volume, instead, extended the downtrend and shrank by around 36.7K contracts.

Gold could revisit the $1,700 mark

Thursday’s downtick in gold prices was on the back of a small increase in open interest, which looks supportive of the continuation of the decline in the very near term. That said, the next level of note for the yellow metal emerges at the $1,700 mark per ounce troy.

Economist at UOB Group Lee Sue Ann reviews the latest interest rate decision by the RBNZ.

Key Takeaways

“As expected, the Reserve Bank of New Zealand (RBNZ) decided to raise its official cash rate (OCR) by 50bps again to 3.50%. This is the fifth consecutive month that the RBNZ has raised rates by 50bps.”

“We see the RBNZ on track to continue hiking the OCR to 4.00% by the end of this year, as per our forecasts. Thereafter, we see the RBNZ on hold, as we are mindful that it will not want the economy to tip over into recession and for unemployment to rise sharply, as it aims to strike a balance with higher interest rates slowing the economy and inflation. House prices are plunging at a fast pace.”

“Risks, however, remain skewed towards more rate hikes in 1Q23, and thus an OCR higher than 4%, before the RBNZ pauses in the current tightening cycle. We will be monitoring both local and global developments and reviewing our OCR trajectory if necessary. The next RBNZ meeting is on 23 Nov, and this will also be the last monetary policy meeting for 2022.”

• USD/CHF has dropped below 0.9900 amid subdued performance by the DXY.
• The risk-off tone has charged back as odds for Fed’s 75 bps rate hike have soared.
• The mega event of the US NFP will provide further direction to the FX domain.

The USD/CHF pair has slipped below the critical support of 0.9900 after sensing a loss in upside momentum. On a broader note, the asset is oscillating in a range of 0.9887-0.9913 and is expected to deliver an explosion of the same.

The asset has turned sideways, following the footprints of the US dollar index (DXY), as investors are awaiting the release of the US Nonfarm Payrolls (NFP) for making an informed auction. Meanwhile, the market sentiment has turned negative sharply as S&P500 has surrendered its entire pullback.

Meanwhile, bets for a fourth consecutive 75 basis points (bps) rate hike by the Federal Reserve (Fed) have soared dramatically. As per the CME Fedwatch tool, the odds advocating a 75 bps rate hike are 75.9%, higher than Thursday’s figure of 66%. However, the US dollar index (DXY) has failed to capitalize on the catalyst and has continued its lackluster performance.  

On the economic data front, the US NFP is expected to land at 250k, lower than the prior release of 315k. A continuation of monetary policy tightening by the Fed is resulting in a downbeat consensus. Due to higher interest rates, firms have postponed their capacity expansion plans. Also, weaker demand by households has forced producers to avoid full-capacity utilization. The whole structure is responsible for a decline in employment generation numbers.

On the Swiss franc front, investors are awaiting the release of the Swiss Unemployment Rate. The Swiss jobless rate is expected to remain steady at 2.1%.

• GBP/USD is attempting a bounce but remains capped below 1.1200.
• Risk-off flows dominate amid mixed US data and ahead of US NFP.
• Cable closes Thursday below critical daily trendline support.

GBP/USD has paused its corrective decline from three-week highs of 1.1495, as investors remain in a wait-and-see mode heading into Friday’s US Nonfarm Payrolls release.

The Asian markets remain cautious, with most FX pairs in thin ranges, refraining from placing big bets. Therefore, the US dollar shows lackluster performance alongside the yields, consolidating the two-day rebound. The recent series of mixed US data and uncertainty over the Fed’s next rate hike move keep investors on the edge.

Meanwhile, the pound remains vulnerable against the dollar, as investors assess UK PM Liz Truss’ recent speech at the Conservative party conference on Wednesday. Truss urged the Conservative party to stick together and help transform the economy and the country. Her comments come after the government’s tax rate cut U-turn was announced on Monday.

From a short-term technical perspective, GBP/USD breached the rising trendline support, then at 1.1193 on a daily closing basis on Thursday.

This suggests cable bears are likely to extend the ongoing correction from near 1.1500 levels.

The 14-day Relative Strength Index (RSI) is lurking below the midline, backing the bearish prospects.

A fresh selling wave could revive bears, calling for a retest of the 1.1100 level on a break of the daily low at 1.1135.

The October low of 1.1085 will be next in sight for sellers.

GBP/USD: Daily chart

On the upside, strong resistance awaits at 1.1200, above which the horizontal 21-Daily Moving Average (DMA) at 1.1259 will be put to test.

The rising trendline support now resistance at 1.1302 will be a tough nut to crack for bulls on the road to recovery.

GBP/USD: Additional technical levels

• AUD/USD is displaying signs of further weakness around 0.6400 as hawkish Fed bets soar.
• The Fed will continue hiking rates by a higher extent to cool down inflationary pressures.
• Fed’s Evans sees interest rate hike by 125 bps collectively in the remaining 2022.

The AUD/USD pair has sensed selling pressure around 0.6432 and is expected to conclude its pullback move. The asset is likely to return to the round-level support of 0.6400 as odds for a 75 basis point (bps) rate hike by the Federal Reserve (Fed) dramatically. Meanwhile, the risk-off sentiment is getting its traction back as S&P500 has surrendered its rebound move.

As per the CME Fedwatch tool, the probability of announcing a fourth consecutive rate hike by 75 bps has soared to 75.9% while odds for half-a-percent rate hike have declined to 24.1%. It is worth noting that projections for the US Nonfarm Payrolls (NFP) data are subdued. The payroll additions are seen at 250k for September vs. additions of 315k reported in August.

The foremost priority of the Federal Reserve (Fed) is bringing price stability to the economy and in the achievement of the same, the central bank is ready to sacrifice upbeat employment status for a certain period of time. Therefore, the market participants are expecting that the Fed will continue its current pace of hiking interest rates. Still, the release of the US NFP report will provide more clarity on the decision-making of the Fed.

Fed policymakers are supporting bigger rate hikes to fix the inflation chaos. Chicago Fed Bank President Charles L. Evans believes that the central bank will reach the targeted rate of 4.5-4.75% by the springtime of 2023. And, the central bank will step up the interest rates by 125 basis points (bps) in the remaining two monetary policy meetings of 2022.

On the Aussie front, the Reserve Bank of Australia (RBA) has warned of financial stability risks that have increased over recent months, as per the semi-annual financial stability review. The central bank believes that Australian markets are stressed by the collective impact of policy tightening, geopolitical tensions, firmer US dollar, and soaring energy prices.

• Gold price is on the defensive for the third consecutive day, away from three-week highs.
• US payrolls could offer clarity on the size of the November Fed rate hike.
•  XAU/USD bulls could face an uphill task, with eyes on key US event risks.

Gold price is moving back and forth in a narrow range above $1,700, struggling for a clear directional bias. Investors have moved into caution trading while the US dollar clings to recent gains alongside the Treasury yields in the run-up to the NFP showdown. Market consensus for headline payrolls is +250K in September vs. August’s +315K. However, next week’s US inflation will be pivotal to seal in the size of the next Fed rate hike. A lack of clarity on the Fed tightening outlook combined with geopolitical tensions could keep the bright metal supported at lower levels. The upcoming US economic releases, therefore, hold the key to determining the next direction in the USD-sensitive precious metal. The demand-supply scenario for gold in India and China will be also closely followed.

Also read: Gold Price Forecast: Will XAU/USD chart a bull penant on weak US NFP?

Gold Price: Key levels to watch

The Technical Confluence Detector shows that the gold price is eyeing a revisit of the previous day’s low at $1,707, below which the convergence of the SMA5 one-day and pivot point one-day S1 at $1,704 will come into play.

A fresh downswing will kick off on a firm break below the latter, threatening the $1,700 mark. The last line of defense for XAU buyers is seen at $1,697, the intersection of the SMA200 four-hour and the pivot point one-day S2.

On the flip side, the Fibonacci 23.6% one-day at $1,712 will offer immediate resistance. The next stop for optimists is envisioned around $1,716, where the Fibonacci 38.2% one-day and SMA10 four-hour meet.

Bulls will then aim for the Fibonacci 61.8% one-day at $1,719, followied by the SMA 50 one-day at $1,722.

The confluence of the pivot point one-month R1 and the previous day’s high at $1,726 could challenge bearish commitments.

Here is how it looks on the tool

About Technical Confluences Detector

The TCD (Technical Confluences Detector) is a tool to locate and point out those price levels where there is a congestion of indicators, moving averages, Fibonacci levels, Pivot Points, etc.  If you are a short-term trader, you will find entry points for counter-trend strategies and hunt a few points at a time. If you are a medium-to-long-term trader, this tool will allow you to know in advance the price levels where a medium-to-long-term trend may stop and rest, where to unwind positions, or where to increase your position size.

• Oil prices are expected to remain in the upside trajectory amid soaring supply worries.
• Biden’s administration may use oil from SPR to offset the impact of OPEC’s production cuts.
• The continuation of the current pace of hiking rates by the Fed will drop the oil demand projections.

West Texas Intermediate (WTI), futures on NYMEX, have surrendered the immediate hurdle of $88.00 and are oscillating lower after four consecutive bullish trading sessions. After a juggernaut rally, a minor correction seems to be a sign of long liquidation and the continuation of the upside is highly biased for now.

Accelerating supply worries after OPEC+ announced the biggest production cut since the Covid-19 pandemic has infused adrenaline rush into the oil bulls. The oil cartel will cut its entire production by two million barrels per day (bpd) from November. It is worth noting that many OPEC players have failed in meeting their sanctioned quotas due to limited production capacity, therefore, the impact could dwindle.

US President Joe Biden has been criticizing the additional production cuts by OPEC and its allies as he believes that global economic fundamentals are unable to support the production cut for now. News wires from the White House narrate that Biden’s administration would use oil from Strategic Petroleum Reserves (SPR). This might offset the impact of OPEC’s production cut to some extent.

Going forward, the minutes of the US Nonfarm Payrolls (NFP) will be keenly watched. The extent of decline or additions will indicate the mood of the Federal Reserve (Fed) towards the rate hike. Upbeat payroll numbers will support the Fed to continue the pace of hiking interest rates and will decline the demand for oil due to diminishing economic activities.

Japanese Prime Minister Fumio Kishida is expressing his take on the recent yen intervention, during his appearance on Friday.

Earlier this week, the Japanese leader said that it is “important to link weak yen to economic recovery by reopening inbound tourism, corporate reshoring.”

Key quotes

“Recent sharp, one-sided yen moves undesirable.”

“Japan's intervention last month reflected the view that we cannot turn a blind eye to speculative FX moves.”

Market reaction

USD/JPY shows little to no reaction to PM Kishida’s remarks, trading 0.11% down on the day near 144.90, as of writing.

• EUR/USD has sensed buying interest below 0.9800 as risk-off is losing its grip.
• The DXY is expected to remain volatile ahead of the US NFP data.
• Fed’s extreme policy tightening measures are responsible for weaker NFP projections.

The EUR/USD pair has delivered an upside break of the consolidation formed in a narrow range of 0.9786-0.9802 in the Tokyo session. The asset has picked bids below the round-level cushion of 0.9800 and is displaying signs of a rebound as the US dollar index (DXY) has lost its upside momentum. The DXY has sensed selling pressure and has dropped to near 112.00.

Meanwhile, the risk-off impulse has started fading away and S&P500 is gaining traction. Also, the 10-year US Treasury yields have witnessed a minor correction and have slipped to near 3.82%.

It would be difficult to narrate a reversal to the current structure as the rebound is mere a pullback now and sheer volatility is expected ahead of the US Nonfarm Payrolls (NFP) data. As per the preliminary estimates, the US NFP will drop to near 250k vs. the prior release of 315k. Recently released US Automatic Data Processing (ADP) Employment data reported payrolls addition by 208k. This indicates that the NFP catalyst could land lower than projections.

Well, a decline in employment generation numbers is highly expected as the Federal Reserve (Fed) is continuously tightening its policy measures to tame the roaring inflation. This has forced corporate to postpone their expansion plans to dodge higher interest obligations.  

On the Eurozone front, weaker Retail Sales data will have its hangover for a tad longer period. The Retail Sales data is contaminated with inflationary pressures but still has declined by 2% vs. the projections of a decline of 1.7% and the prior release of 0.9%.

Analysts at Societe Generale offer their expectations on the upcoming US Nonfarm Payrolls data, which is expected to have a significant market impact.

Key quotes

“We project a 280K gain.”

“The unemployment rate for September is expected to decline to 3.6%.”

“The monthly flows are volatile. If there are no returnees, or if there is a net exodus from the labor force rather than re-entrants, the unemployment rate could drop even more than the 3.6% we project.”

“Wages are expected to rise 0.5% MoM in September. We view the shortfall seen in August, when wages rose 0.3%, as noise in the data rather than the beginning of a new trend.”

• NZD/USD bears are lurking at key resistance just below 0.5700.
• Bears eye a move towards this week's low in anticipation of a stronger US dollar and NFP.

NZD/USD came under selling pressure again on Thursday after making a fresh high for the week so far up at 0.5813, only to succumb to higher US yields and a rampant greenback that took revenge on its counterparts into the final seasons for the week. 

The moves were extensive in forex that has struggled to find direction on the week so far in the lead into the showdown event in Friday's Nonfarm Payrolls. 

 US yields and the US dollar both rallied as investors dial back the sentiment surrounding a picot from the Federal Reserve. The following illustrates the market structure in the yields, DXY and NZD/USD ahead of the data for today. 

US 10-year yield H1 charts

US yields led the way after showing resilience earlier in the week.

The W-formation, as shown here on the hourly chart that is zoomed-in, is a bullish scenario for the day ahead. The yield will need to hold up on retests of the neckline. This is a bearish scenario for the kiwi as we head over to the Nonfarm Payrolls on Friday. 

DXY H1 chart

In anticipation of a positive report, the DXY index, which measures the US dollar vs a basket of currencies, including the kiwi dollar, rose and extended its gains from the previous day. So long as the bulls commit, there are prospects of a retest towards clearing 112.50 again with sights on 113.00.

NZD/USD H1 chart

As illustrated, the bird was sold off heavily and is trying to base around 0.5650. A break below there, however, opens risk of a run-on long position towards this week's lows around 0.5590 with last week's lows located at 0.5565. On the other hand, should the NFP report disappoint, investor sentiment for a Fed pivot will be reignited ahead of next week's inflation data for the US, opening risk of a meanwhile rally back towards or beyond Thursday's highs around 0.58 the figure if bulls can get beyond 0.5750. 

• Oscillation around 0.6400 indicates a build-up of shorts for a breakdown.
• Declining 50-and 200-EMAs add to the downside filters.
• The RSI (14) has shifted into the bearish range of 20.00-40.00.

The AUD/USD pair is displaying back-and-forth moves in a narrow range of 0.6400-0.6422 in the Tokyo session. The asset has turned sideways after a perpendicular fall from 0.6540 as the market sentiment turned extremely sour on geopolitical tensions and a downward revised outlook on growth prospects from the International Monetary Fund (IMF).

On an hourly scale, the asset has been auctioning in an inventory adjustment process chartered in a 0.6390-0.6548 range. As the major is still oscillating inside the defined territory, it is difficult to tag it as a breakout or a breakdown. It is worth noting that the asset is oscillating near the lower portion around 0.6400. The sideways auction is followed by a perpendicular fall, therefore, chances are the greenback bulls are gathering momentum for a downside break.

Meanwhile, the 50-and 200-period Exponential Moving Averages (EMAs) at 0.6494 and 0.6457 respectively have titled towards the south, which indicates weakness ahead.

Also, the Relative Strength Index (RSI) (14) has shifted into the bearish range of 20.00-40.00, which adds to the downside filters.

Going forward, a drop below the two-year low at 0.6363 will drag the asset towards the 16 April 2020 low at 0.6264, followed by the round-level support at 0.6100.

On the flip side, a break above Tuesday’s high at 0.6547 will drive the asset toward September 22 high at 0.6670 and September 18 high at 0.6734.

AUD/USD hourly chart

• GBP/USD is expected to drag towards 1.1100 on escalating hawkish Fed bets.
• Fed policymaker sees a collective rate hike by 125 bps in the remaining 2022.
• Investors have started considering the possibility of cable parity this year.

The GBP/USD pair has delivered a downside break of the consolidation formed in a narrow range of 1.1145-1.1173 in the Tokyo session. The cable is hovering around Thursday’s low at 1.1112 and is expected to decline toward the round-level cushion of 111.00. Risk-profile is awaiting fresh cues from S&P500 as the index is building a cushion after a downside move. It is difficult to tag now whether the inventory adjustment process will be an accumulation or distribution.

Meanwhile, collective action of South Korea and the US to respond against North Korea’s provocations through joint drills with US aircraft carrier is advocating for continuation of risk-aversion. The US dollar index (DXY) is gathering momentum to cross the intermediate hurdle of 112.30 amid an improvement in safe-haven appeal. Apart from that, hawkish commentary from Federal Reserve (Fed) policymakers is strengthening the DXY.

Chicago Fed Bank President Charles L. Evans believes that the central bank will reach to targeted rate of 4.5-4.75% by the spring of 2023. And, the central bank will step up the interest rates by 125 basis points (bps) in the remaining two monetary policy meetings.

However, the US Nonfarm Payrolls (NFP) data will remain in spotlight. Interest rates have been advancing by the Fed and the labor market is extremely tight. This has resulted into a decline in the projections for the payroll data to 250k from the prior release of 315k.

On the UK front, poor economic fundamentals have forced the institutional investors to consider the odds of cable parity this year. The rollback of tax cuts by the UK administration has safeguarded the sterling economy to get exposed against highest borrowing structure since 1972. Meanwhile, Fitch Ratings has affirmed a AA- rating to BOE sovereign, outlook revised to Negative from Stable.

US President Joe Biden at a Democrats fundraiser tonight said, “we have not faced the prospect of Armageddon since Kennedy and the Cuban missile crisis.”

He says Putin is “not joking when he talks about the potential use of tactical,” nuclear or biological weapons because his military is underperforming.

President Vladimir Putin, who rules the world's biggest nuclear power, has repeatedly cautioned the West that any attack on Russia could provoke a nuclear response.

In other news, Putin said he expected sanctions pressure on the Russian economy to intensify, in televised remarks from a meeting with government officials.

Reuters also reports that the Kremlin denied reports that 700,000 Russians have fled the country since Moscow announced a mobilisation drive to call
up hundreds of thousands to fight in Ukraine.

Meanwhile, US intelligence agencies believe parts of the Ukrainian government authorised a car bomb attack near Moscow in August that killed Darya Dugina, the daughter of a prominent Russian nationalist, the New York Times reported.

South Korea's military said on Friday that they and the United States will conduct joint maritime drills involving a US aircraft carrier in waters off its east coast on Oct 7-8.

"We will continue to strengthen our operational capabilities and readiness to respond to any provocations by North Korea through joint drills with ... the U.S. Reagan Carrier Strike Group," South Korea's Joint Chiefs of Staff said.

This follows multiple days of missiles being launched towards Japan by the North Koreans. 

Earlier in the week, Japan urged residents to take shelter after North Korea had been reported to have fired a ballistic missile over the north of the country.

It was the North's first missile launch over Japan since 2017.

The US, Japan and South Korea have already conducted their own military drills in response.

This escalation of Pyongyang’s missile tests has prompted immediate backlash from Tokyo and has put markets on risk-off alert. 

Secretary of State Antony Blinken said on Thursday that the United States is "reviewing a number of response options" with regard to its relationship with Saudi Arabia after Riyadh and other OPEC+ nations agreed this week to large cuts in oil production.

"As for the relationship (with Riyadh) going forward, we're reviewing a number of response options. We're consulting closely with Congress," Blinken said at a news conference in Lima alongside his Peruvian counterpart.

Reuters reports that ''Blinken did not specify what steps Washington was considering. President Joe Biden's administration has been mulling a response after the OPEC+ oil producers, which include Russia, agreed on Wednesday to slash production.''

Oil price update

Meanwhile, oil prices rose on Friday, continuing an upward trend after OPEC+ this week agreed to tighten global supply. The cartel agreed to a deal to cut production targets by 2 million barrels per day (bpd).

Brent crude futures rose 19 cents to $94.61 a barrel by 0002 GMT. WTI spot is trading at $88.50, down 0.5% in Asia on Friday.

• USD/JPY is aiming to shift its auction profile above 145.00 amid weaker market sentiment.
• The tight US labor market is responsible for lower projections of US NFP.
• Geopolitical tensions between Japan and North Korea have impacted the yen bulls.

The USD/JPY pair is oscillating above the critical hurdle of 145.00 and is expected to sustain above the same by shifting its auction profile higher. The asset is expected to remain in the grip of bulls as the market sentiment is advocating a risk-aversion theme amid geopolitical tensions. Also, the upcoming event of the US Nonfarm Payrolls (NFP) has kept the risk-perceived currencies on the tenterhooks.

On Thursday, the major managed to cross the hurdle around 144.80, which pushed the asset above the 145.00 figure. The pair witnessed strong demand due to the sheer strength of the US dollar index (DXY). The mighty DXY recaptured the 112.00 hurdles and established itself above the same on soaring yields. The 10-year US Treasury yields printed a fresh weekly high at 3.85%.

Considering the price action, the DXY is expected to cross the immediate hurdle of 112.31 confidently. As per the CME Fedwatch tool, the probability of announcing a 75 basis point (bps) rate hike in the first week of November by the Federal Reserve (Fed) has reached 66%.

Going forward, the US Nonfarm Payrolls (NFP) data will be of utmost importance. According to the estimates, the payroll data will display addition of 250k against the former addition of 315k. The US labor market is extremely tight, therefore room for more addition is extremely low. Therefore, the DXY will continue its upside momentum.

On the Tokyo front, ongoing tensions between Japan and North Korea after frequent missile launches by the North Korean military have discarded international peace. Japanese Deputy Chief Cabinet Secretary Seiji Kihara has condemned the missile launches activity by North Korea, as reported by Reuters. He further added that "North Korea may increase provocative operations, including nuclear tests."

Apart from that, lower-than-projected Overall Household Spending data has impacted the yen bulls. The economic data has landed at 5.1%, lower than the projections of 6.7% but remained higher than the previous release of 3.4%. In spite of continuous deployment of funds into the economy by the Bank of Japan (BOJ), downbeat Overall Household Spending data is a reason to worry.

In its semi-annual financial stability review, the Reserve Bank of Australia (RBA) on Friday warned financial stability risks have increased over recent months.

The RBA said as interest rates rise, pressures on Australian household budgets and business cashflows are also rising while housing prices are declining.

"Financial stability risks would be magnified by a further substantial tightening in global financial conditions," said the RBA in its 70-page review.

"The outlook for financial stability over the coming years will hinge in large part on the ability of households and businesses to weather challenging economic conditions both in Australia and internationally," said the RBA.

Key quotes

Financial stability risks have increased globally.
    
Markets are stressed by synchronised policy tightening, geopolitical tension, higher us dollar, and rising energy prices.
    
Stability risks would be magnified by further substantial tightening in global financial conditions.
    
Australian banks are liquid, well-capitalised and resilient to any loan arrears.
    
Important that bank lending standards remain prudent.
    
Australian households and banks generally have strong financial positions.
    
Some households already feeling the strain from higher rates, likely to last for some time.
    
Lags mean rate rises yet to pass through completely to mortgage payments.
    
A small group of borrowers are particularly vulnerable to repayment difficulties.
    
Most mortgage holders have substantial equity in their homes and could weather very large price falls.
    
Many businesses face rising cost pressures, higher rates, and slowing revenue growth.
    
Indicators of financial stress are likely to increase in the period ahead.
    
Cyber-attacks and climate change are major challenges to financial systems.

AUD/USD update

Meanwhile, AUD/USD is trapped in daily ranges between 0.6525 and 0.6275, trading around 0.6410 as markets await the US jobs market data in a stronger US dollar environment at the end of the week. 

• EUR/USD bears are balancing at a key level on the charts. 
• The price is hanging over the edge of the abyss ahead of NFP.

EUR/USD was sold off on Thursday as investors get set for the outcome of Friday's key US event in Nonfarm Payrolls. US yields and the US dollar both rallied as investors dial back the sentiment surrounding a picot from the Federal Reserve. The following illustrates the market structure in the yields, DXY and EUR/USD ahead of the data for today. 

US 10-year yield H1 charts

The W-formation, zoomed-in, is bullish as price meets support at the neckline. This is a bearish scenario for cable. 

DXY H1 chart

Despite downbeat Initial Jobless Claims, the DXY index, which measures the US dollar vs a basket of currencies, including the pound, rose and extended its gains from the previous day. 

On Thursday, the greenback is back above 112.00, recovering from when it was initially falling against most majors at the start of the week before regaining ground. The question here is whether it can extend the gains towards the high of the week through 112.50.

If Friday's NFP is terrible, then the 111 level will potentially come under pressure, whereas if the data is in line, it will be another disappointment for those looking for a Fed pivot and positive for the greenback, bearish for the euro: 

EUR/USD H1 chart

As for the single currency, it is consolidated at Thursday's low and back to where the week started out. We may have already seen the high for the week so the focus is on the downside while below 0.9850 or thereabout. Last week's low is near 0.9535 and a break of 0.9650 guards the area for a downside extension:

The daily chart above is bearish while below the trendline resistance, however, the 30 September doji (highlighted on the chart) is a point of structure around the current level that needs to give for a convincing short-term bearish case currently. 

• Gold price bears are gaining momentum on soaring yields after Fed’s hawkish commentary.
• Fed policymaker Evans sees interest rate hikes by 125 bps collectively in the remaining 2022.
• The DXY will dance to the tunes of US NFP data ahead.

Gold price (XAU/USD) has slipped modestly after facing barricades of around $1,715.00 in the Tokyo session. The precious metal is expected to slip further to near $1,700.00 as yields are hovering at elevated levels amid hawkish commentaries from Federal Reserve (Fed) policymakers. The risk-off profile is extremely solid as S&P500 is expected to decline further.

Fed Governor Christopher Waller crosses wires on Thursday, stating that he sees little reason in the slow down of the policy tightening pace by the central bank. He further added that "Inflation is far from the FOMC’s goal and not likely to fall quickly,"

The commentary from Chicago Fed Bank President Charles L. Evans is more quantitative and provides specific targets ahead. Fed policymaker believes that the central bank will reach the targeted rate of 4.5-4.75% by the spring of 2023. And, the central bank will step up the interest rates by 125 basis points (bps) in the remaining two monetary policy meetings.

Meanwhile, the US dollar index (DXY) seems firmer around 112.26, and is likely to stretch its upside journey ahead of the US Nonfarm Payrolls (NFP) data. As per the consensus, the US economy added 250k jobs in September against the prior additions of 315k. The jobless rate is expected to remain constant at 3.7%.

Gold technical analysis

Gold prices have declined after failing to cross the weekly hurdle of $1,729.58 on Thursday. The asset has formed a Double Top chart pattern which indicates the unavailability of extreme strength while crossing the prior hurdle.  

The precious metal is oscillating around the 50-period Exponential Moving Average (EMA) at $1,712.00. The 200-EMA at $1,688.00 is still advancing, which states that the uptrend is still intact.

Meanwhile, the Relative Strength Index (RSI) (14) has shifted into the 40.00-60.00 range from the bullish range of 60.00-80.00.

Gold hourly chart

At a virtual event held by the Council for Economic Education, Cleveland Federal Reserve Bank President Loretta Mester explained that she believes that the US Unemployment Rate will likely rise a little but she said "we have to be singularly focused on inflation."

"If we want to get back to healthy conditions, this is something we have to do."

Key comments

• I don't think we can count on a big surge in labour force participation.
• We have to be singularly focused on inflation.
• Getting inflation down is job one.
• I see more persistence in inflation and see rates rising higher than the median of Fed policymakers.
• We have more work to do to get inflation on 2% path.
• I have not seen any evidence that markets aren't working in the US.
• As the Fed raises rates, that won't stop the central bank from pursuing "job one" of fighting inflation.
• We will not be cutting rates next year at all.
• Fed will use its tools to get to inflation target, don't need fiscal policy to tighten to make that happen.

US dollar update

The DXY index, which measures the US dollar vs a basket of currencies rose on Thursday and extended its gains from the previous day. The index is back above 112.00, recovering from when it was initially falling against most majors at the start of the week before regaining ground.

If it is going to extend the gains towards the high of the week through 112.50, the Nonfarm Payrolls will need to shape up. If Friday's NFP is terrible, then the 111 level will potentially come under pressure as investors will be looking for a Fed pivot.

• USD/CAD has sensed hurdles around 1.3750 as the focus has shifted to US/Canada employment data.
• BOC Macklem’s hawkish commentary has failed to support the loonie bulls.
• OPEC+ production cuts announcement has infused fresh blood into the oil bulls.

The USD/CAD pair has faced barricades while attempting to cross the immediate hurdle of 1.3750 in early Asia. The asset has turned sideways and has not displayed signs of correction yet amid negative market sentiment. On Thursday, the pair witnessed a firmer rally after overstepping the critical hurdle of 1.3700.

A hawkish commentary from the Bank of Canada (BOC) Governor Tiff Macklem has failed to strengthen the loonie bulls. BOC policymaker sees no slowdown in the pace of hiking interest rates as signs of inflationary easing are unavailable. The message seems ‘loud and clear that investors should brace for bigger rate hikes ahead. Currently, the BOC’s interest rate stands at 3.25% and bigger rate hikes would trim the overall demand in the economy.

In today’s session, Statistics Canada will reveal the employment status for September. Net Change in Employment indicates that the economy would have added 20k jobs vs. the lay-off of 39.7k employees. The Unemployment Rate is seen as stable at 5.4%.

On the oil front, the announcement of sheer production cuts by OPEC+ has infused an adrenaline rush in the black gold. Oil prices have displayed a vertical rally and are expected to hit the immediate hurdle of $90.00. It is worth noting that Canada is a leading exporter of oil to the US and higher oil prices will delight Canada’s fiscal balance sheet.

Meanwhile, the US dollar index (DXY) is awaiting the release of the US Nonfarm Payrolls (NFP) data for more clarity. The payroll data is expected to land at 250k, lower than the prior release of 315k. While the Unemployment Rate is seen as stable at 3.7%. Till the release of the labor market data, a lackluster performance is expected at the counter.

• The AUD/JPY is set to finish the week positive, up by 0.43%.
• A bearish flag emerged in the daily chart perspective, which targets a fall toward the 200-day EMA at 90.58

As the Asian Pacific session begins, the AUD/JPY is almost flat during the day, following Thursday’s 0.87% fall, due to risk-off impulse, as shown by US equities falling between 0.68% and 1.15%. Factors like mixed US economic data reported during the week, and market speculations of a Fed dovish pivot waning, bolstered safe-haven assets, like the US dollar and the Japanese yen. At the time of writing, the AUD/JPY is trading at 93.00, almost flat.

AUD/JPY Price Forecast

The AUD/JPY daily chart shows the pair consolidates around the 93.00-94.60 range, forming a bearish flag. Notably, the AUD/JPY has faced solid resistance around 94.00/60, around the top-trend line of the bearish flag.

Since Wednesday, the AUD/JPY traded, near the bottom of the bearish flag, though on Thursday, rallied towards the top and retraced those earlier gains. Therefore, the AUD/JPY path of least resistance is downward biased, further confirmed by the Relative Strength Index (RSI), staying in bearish territory, below its 7-day RSI’s SMA.

Therefore, the AUD/JPY first support would be the bearish flag bottom trendline around 92.50-75. A breach of the latter will expose the September 28 cycle low at 92.12, immediately followed by the 92.00 figure. Once cleared, the AUD/JPY might slide towards the 200-day EMA at 90.58.

AUD/JPY Additional Technical Levels