Will NFP Support Fed’s Hawkish Stance? GBP Plunged More than 160 pips on Super Thursday!

A key week for the dollar that gained significant ground against the other major currencies due to the hawkish signals from Fed Chair Janet Yellen. Yellen said that December’s rate hike is possible if the data supports it. This throws all the weight to today’s non-farm payrolls report and we expect to see greater volatility than at the usual NFP releases! If the data beat market expectations, the dollar will culminate, the odds for a December rate hike will soar and only a big surprise on the downside for the November’s Non-Farm Payrolls report could hold the Fed back from raising rates.

USD

The last two reports showed that the economy added less than 150,000 jobs each month, but now the market expects 180,000 new job positions for October! A number above 200,000 will be potent for the labour market and confirm by far Fed’s view. The unemployment rate is forecasted to remain at the same levels as the last two months, the lowest level since 2008 while the hourly earnings growth is a little headache for the investors. Even though all the other factors improved on a moderate and constant pace, wage growth stills in a range between -0.2% and 0.2% with temporary spikes to 0.4% but it is not being stabilized. In August, the wages remained stagnant and are expected to have picked up by 0.2% in October.

The ADP employment change surpassed expectations sending a positive signal, however, the initial jobless claims released yesterday worried the market participants. The number of US citizens that filed for unemployment benefits for the first time rose by 16,000 the week ended on October 30 recording the highest increase in eight months. Although, on the macro view, the initial jobless claims are gradually decreasing since 2009.

US

GBP Plunged more than 160 pips!
Going to UK, the British Pound's drop following the BoE meeting will remain in history. The GBP/USD fell more than 160 pips in less than two hours on the announcement that policymakers voted to keep interest rates unchanged, 8-1 as it was widely expected despite the willing for a more hawkish voting pattern, and to slash the GDP forecasts to 2.7% in 2015 and 2.5% in 2016. On the top of that, the BoE also lowered the inflation rate forecasts and sees a consumer prices growth above the bank's 2% target of 2.1% in the fourth quarter of 2017 and 2.2% the year later. The latest development postpones the first interest rate hike from BoE. The BoE Governor Mark Carney said that is “reasonably prudent to think BoE rate will rise in 2016, given the progress this economy is making” but failed to support the pound. The main concern of the UK economy is the inflation rate which is surrounded around zero since February and refuses to pick up.

GBP

Since yesterday, the GBP/USD pair is under heavy bearish pressure. Until the NFP release, we expect the prices to drop towards the main support zone at 1.5100. If the data is better than expected and the greenback continues to appreciate until we see a daily close below the 1.5100 support, this will be a signal that further declines are going to take place. On the other hand, we would like to see the pair traded above the 1.5300 zone to say that bulls have control over the trend.

Eurozone’s Economic outlook deteriorates!
The shared currency is negatively performed overall since Monday but remained firm versus most of the major currencies on Thursday despite that the Eurozone’s economic outlook deteriorated based on economic data reinforces ECB to keep its dovish bias! European Commission lowered economic growth forecasts for 2016 on increased growth risks. Moreover, Eurozone Retail Sales contracted by 0.1% the worst performance since April. Economists were expecting the German industrial production to bounce near 1%, as a hope to support the euro, but the largest European economy was affected from the global slowdown and missed expectations, recording the deepest decline since August 2014.

Today is an NFP day so basically the trend for the most dollar related pairs is expected to be sideways until the data is out. The EUR/USD is likely to be traded within a tight range between the resistance at 1.0925 and support at 1.0840. However, after the release depending on the released numbers, the pair may spike in both directions.

USD/JPY – Technical Outlook
The USD/JPY pair has been able to keep trading above the 121.55 resistance and this may be a sign that the bulls would continue to pressure. However, this pair, as the other two above, will be highly influenced by the NFP report. Technically, a daily close below 121.55 will be a sign that the bears are taking the control back. On the other hand, if the daily bar closes above the 121.60 level then we will expect a rally up to 122.50.

WTI Crude is under bearish pressure before NFP data!
The WTI Crude Oil retraced back some of last week gains and currently the prices are traded 40 cents above the main support at $45.00. On the 4-hour chart, the price action suggests that further declines are going to take place. A 4-hour close below $45.00 will be a sign that the prices are going to test once again the main support at $43.00. On the other hand, if we observe a strong bullish price action and the prices are able to keep trading above $45.00 after the NFP report, the scenario may turn bullish.

DXY consolidating above a broken resistance!
During the last couple of days, the US dollar index has been in a strong uptrend and currently the prices are traded below the 98.20 resistance. Despite the bullish trend, the current move is way too overextended and we expect a consolidation before the rally continues. Probably today, we will see a range trading between 97.70 and 98.20 until the NFP is out.

U.S. Indices Consolidating ahead of NFP Report
As the Fed is coming closer to raise interest rates for the first time in more than a decade, US indices refuse to pick up. On Thursday’s trading session, all of the three most popular indices remained in a tight range and consolidated in front of today’s jobs report. The Nasdaq Composite index decreased by 0.29% and the S&P500 recorded losses of 0.11% while the Dow Jones Industrial Average was virtually unchanged. Today’s Non-Farm Payrolls report will be a catalyst sign if the US economy is strong enough to withstand tightening, thus until the release we expect the trading to be kept quiet and no trendy moves are expected. However, upon the release there will be strong volatility and probably moves in both directions.

Markets Summary

Economic Indicators
In UK, traders will keep a tab for the industrial and manufacturing production in September, as well as the country’s trade balance. Moving ahead, Friday’s non-farm payrolls report for October will be keenly watched for further insights into the state of the US labour market. The US economy is forecasted to have added 180,000 new job positions in October while the unemployment rate is expected to have remained at 5.1%. If we see a number above 200,000, it will be the highest figure of the last three months and the greenback will surge!

US Non Farm Payrolls

The Canadian employment data is scheduled for release at the same time as the US labour report. The Canadian unemployment rate is also forecasted to have remained stable at 7.1% while the employment change is expected to show a decrease to 9.0k from 12.1k before. Going forward, in UK, the NIESR GDP Estimate for the three months to October will be posted. Moreover, late on Friday, the Reserve Bank of Australia will release its Monetary Policy Statement.

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