Super Mario Draghi and NFP Friday

Super Mario Draghi:
With China still on holidays in observance of Victory over Japan Day, we’re expecting a quiet Asian session in the lead up to Non-Farm Payrolls later tonight. Yesterday it was interesting to see markets such as the Australian SPI200 print a long red daily candle without having a Chinese lead to blame!

Last night saw ECB President Mario Draghi deliver a largely dovish press conference following the ECB’s board meeting. The Euro sold off hard as Draghi delivered some changes to the ECB’s quantitative easing program, expanding it slightly and ensuring the market that it would be continued into the near future. This was a tweak to the previous ECB rhetoric, hinting at a stronger willingness to prolong their bond purchasing program.

“Stimulus will continue until the end of September 2016. Or beyond if necessary.”

Europe hasn’t escaped the more subdued global outlook and Draghi spoke of a reduction in growth and deflation concerns, pushing the Euro back to swing lows.

EUR/USD Daily:

From a technical viewpoint, EUR/USD sits at an important support level as it tries to move through a change of trend.

NFP Friday:
Looking at where price sits on the above chart and considering the global economic uncertainty surrounding the Fed right now, there is definitely more risk in playing for a drop. We also have to consider the possibility of a clear ‘no’ being signalled tonight before the NFP number has even been printed, with the Fed’s Lacker speaking 20 minutes before the NFP release in a speech titled ‘The case against further delay’. Sounds pretty ominous to me.

August has historically been a month of disappointment for employment numbers with economists overestimating the month’s NFP print over the past four years by an average of 50,000. The old August curse!

Keep in mind that this is also the final NFP print before the Fed’s September policy meeting. Bloomberg’s Michelle Jamrisko gives an excellent ‘Jobs Day Guide’ here.

On the Calendar Friday:
CNY Bank Holiday

USD FOMC Member Lacker Speaks
CAD Employment Change
CAD Unemployment Rate
USD Average Hourly Earnings m/m
USD Non-Farm Employment Change
USD Unemployment Rate
CAD Ivey PMI

Chart of the Day:
Today we head back to the world of Forex trading with a look at a flag pattern on the AUD/NZD daily chart. We also take a look at the how price reacts to previously significant levels after unnatural spikes.

AUD/NZD Daily:

The above chart shows a flag pattern forming with clear support at a retest of broken horizontal resistance that could possibly be retested as support. This level provides a clear area to manage your risk around and to play for the breakout to the upside.

When talking about how to draw trend lines, it’s worth noting how the market treated Black Monday’s spike from a technical point of view. The market treats unnatural spikes differently to regular rejections. Unnatural being thin liquidity such as Monday, unpredictable events and even some news candles.

As you can see, the Black Monday spike pushed through the upper trend line of our flag channel but the very next test obeyed the original line cleanly. Don’t ever remove trend lines or levels that have been breached by price action that could be deemed unnatural.