USD Looks to NFP to Gain Further Traction; Pound Crashes; EUR/USD Profit Locked

Once again, is non-farm payrolls' Friday and in less than 7 hours the September job report will be released. Federal Reserve officials made it very clear that the decision on a rate rise in December would hinge in large part on today's jobs report. The Fed kept its benchmark interest rate on hold at its September meeting, as was widely expected. In its policy statement released a few weeks ago, the U.S. central bank expressed confidence in economic growth, but not enough to make a move.
The increase likely would come at the mid-December meeting, considering the early November policy meeting comes just ahead of the U.S. presidential election and there is no post-meeting news conference scheduled.

The committee reduced its expectations both for economic growth and inflation this year, indicating that growth of economic activity has picked up from the modest pace seen in the first half of 2016 but raised its concerns about inflation that has not risen to the Fed's 2% target.

Most economists expect a recovery in September's job growth after last month's weak report. U.S. non-farm payrolls, which include both public and private-sector employment, were estimated to gain around 180K jobs in August following a healthy 255K in July. The outcome was not as widely expected; 151K jobs gained, wages were up only 0.1% mom and the unemployment rate came out at 4.9%, no change.

The U.S. economy continues to add jobs but not going too far. On the other hand, the Fed is dovish, the U.S. presidential elections are coming in early November and the economy is not sizzling hot. Overseas, the European banking sector (Deutsche Bank) is facing significant problems, with sluggish growth throughout the major European countries and with ECB holding in negative rates since June 2014. So, all the major banks (ECB, BoJ, and BoE) are easing. Therefore, no reason the Federal Reserve to hurry with rates.

The NFP number forecast seems to be strong in September. Consensus expectations compiled by various news organizations are for September payrolls to rise by somewhere around 172,000 to 177,000. The August gain was 151,000. This may have a bullish effect on the U.S. dollar, which could add further pressure to the EUR/USD pair and Gold, as well as to the other USD cross currency pairs. The average hourly earnings are also coming out with an expectation to rise by 0.2% mom, instead of the previous month which rose 0.1% mom, while the unemployment rate is estimated to remain unchanged at 4.9%

If non-farm payrolls exceed 200K, the unemployment rate holds steady or better yet improves and see average hourly earnings growth exceed 0.2% then expectations for a rate hike in December will spike again. On the other hand, if payrolls grew by less than 150k we could see an aggressive correction in the dollar, particularly after the strong gains that it has seen the last few weeks.

EUR/USD – Profit locked at 1.1150 ahead of the NFP
The EUR/USD pair plunged more than 1% during this week and over yesterday's session broke to the downside the descending triangle which was holding since August 08. The pair ahead of the Nonfarm payrolls report which will be released in a few hours dropped to 1.1120 on the back of U.S. dollar strength. This came in line with our analysis which we have recommended (short positions) during yesterday's session, near 1.1200.

The technical structure suggests further bearish movement if the price slip below the 50-weekly SMA which overlaps with the second support level of the pivot points. The latter levels seem to be a strong support obstacle for the bears. If there is a successful penetration of the aforementioned levels then the door will open for the 1.1050 barrier. On the other hand, the price will probably have a pullback to the 1.1150 strong resistance level and then will continue its downward potential move. Currently, the common currency is developing below the three SMAs (50-SMA, 100-SMA and 200- SMA) on the 4-hour chart and there are near the 1.1200 critical level. Technical indicators are biased lower after entering the negative territory. The MACD oscillator is moving below both, its zero and trigger line suggesting a further decline in price. In addition, the RSI is following a downward path near the 30 level, confirming the recent bearish attitude of the price.

USD/JPY has more room to run
The USD/JPY pair is trading 3.5% higher so far over the last ten days and is recording the second positive weekly candle in a row after three consecutive red weeks. The pair created the ninth day of gains without a pullback. The last time there was these many positive days was back in March 2011 and at that time the pair did not peak until 10-days later. The question that we posted today is whether non-farm payrolls could drive the pair to 106.00, a strong resistance level, and if the jobs report will be strong enough to push the pair for more upside move.

From the technical point of view, it is significant that the USD/JPY pair is developing above the descending trend line, which started back in December 2015, as well as above both, the 50-SMA and the 100-SMA on the daily chart. Over the medium-term, the bulls will eye the 200-SMA, near the psychological level at 106.00. However, before reaching that region, they should go through the 104.50 and the 105.00 marks, two significant barriers that the short-term traders should watch. Technical indicators, on the daily chart, are following the positive territory while the MACD oscillator is moving with strong momentum. Also, the RSI indicator lies near the 70 level.

British pound crashes to three-decade low
The British pound collapsed by 6% in less than 5 minutes during the Asian session on a combination of renewed reports of Hard Brexit demand by French president Francois Hollande. The Financial Times (FT) reported that François Hollande said at a dinner in Paris that the UK must suffer the consequences of leaving the European Union in order to save the institution from an existential crisis. But that was the real reason behind the pound's move? Some other traders and sides pointed to a human error, with algorithms adding selling pressure at a time that liquidity was typically low. Either way, sterling sank as low as 1.1978 in early Asian trading, however, the pound pare the fall to trade 1.4% weaker at 1.2430 during the early European session. The euro reached a fresh 10-year high, 0.9250, following the aggressive sell-off.

The GBP/USD pair sank during the Asian morning below the 1.2000 mark, but quickly bounced back to trade around the 1.2400 area. The technical readings and momentum indicators are currently extremely distorted by the sharp decline, as they maintain sharp bearish slopes within extreme oversold levels. Would be very difficult to apply a technical analysis on any GDP crosses following the aggressive sell-off which destroyed all the supports levels towards the 1.1900 region. However, the level over the medium-term to watch will be the 1.2800 mark, as long as the pair remains below that mark the risk will remain towards the downside. More wild swings should be expected for the upcoming session as the NFP report is due for release.

Other events to watch today
The day is starting with the industrial production in Germany which is estimated to rose by 0.8% mom in August from a drop of 1.5% in the month prior. In the U.K., industrial production is estimated to have increased by 1.3% mom in August, a slower pace than the previous month that increased 2.1% mom. The nation's manufacturing production for the same month, is forecasted to rise by 0.4% mom from a drop of 0.9% mom. Even more, the housing starts in Canada will be published as well as the unemployment rate which is expected to be the same as the previous month. In the U.K., the NIESR GDP estimate for the three months to September will be released. The week is ending with the FOMC Member Mester speech a few hours after the NFP report.