Chance of September Rate Hike Fades on Weak NFP

The US Non-Farm Payroll (NFP) and Unemployment Rate for August were released on Friday. The NFP reading fell to 151k, lower than both expectations of 180k, and the previous figure of 255k in July. The Unemployment Rate was 4.9%, in line with the previous figure, yet slightly higher than the expectations of 4.8%. The Average Hourly Earnings (YoY) for August fell to 2.4%, from 2.6% in July. The Average Hourly Earnings (MoM) for August fell to 0.1%, from 0.3% in July.

The NFP figure is crucial for the Fed to gauge whether or not they have to hike rates in September. Despite Yellen’s hawkish speech made on 26th August, the disappointing NFP figure and the slowdown of wage growth imply that the chance of a rate hike in September has faded.

According to historical data, the NFP figures in August were usually lower-than-expected, and revised upward significantly in the following month. Even though, economic indicators in the past months have given mixed signals, which means the overall economic performance is not solid enough yet for a rate hike in September.

Yet there is still a chance of a rate hike in December, if the following US economic indicators show a sound growth. The FOMC meeting in September could be used to pave the way. According to CBOT 30-day Federal Funds Futures , after the NFP released, the chance of a rate hike in September has dropped from 24% to 18%, then rebounded to 21%. The chance of a rate hike in December remains unchanged at 44%.

After the figures were released, DXY plunged to a week low of 95.17, from 95.79, a 0.65% fall. Yet after testing the significant support level at 95.20, the index rebounded sharply, broke the resistance level at 95.80 and retraced. It currently holds above the level at 95.60. The next support line is at 95.40, followed by 95.00. The resistance level is at 95.80, followed by 96.00 and 96.23. The daily and 4 hourly time frame Stochastic Oscillator indicator are both crossing over downward, suggesting a retracement.

Keep an eye on the upcoming US economic data, as it will influence the strength of the dollar and the trend of the dollar index.

USD/JPY has turned bullish since 26th August. The release of the weak NFP figure didn’t weigh on USDJPY. On the daily chart, it broke the major downtrend line resistance and tested the next resistance level at 104.00. The support line is at 103.00. Nevertheless, as the chance of a rate hike in September has receded, in near term the bullish momentum of the dollar will likely be reined in. In addition, if the upcoming US economic data underperforms, the yen will likely strengthen again. In that case, the Bank of Japan may consider implementing further QE measures.

Gold held after testing the significant support level at 1300 on 2nd September. The weak NFP figure helped spot Gold surge from 1296.66 to 1330.07, a 2.58% intra-day rise. The price retraced after testing the significant resistance level at 1330. It currently holds above the newly formed support level at 1320. The next support line is at 1310, followed by 1300. The resistance level is at 1330, followed by 1335 and 1340.

After the NFP and Unemployment Rate figures were released, Silver surged and broke the upside significant downtrend line resistance at 19.20. The resistance level is at 19.50 followed by 19.70 and 20.00. The support level is at 19.20, followed by 19.00 and 18.80. The 4 hourly time frame Stochastic Oscillator is above 80, and the CCI indicator is around 100, be aware of a pullback in this price zone.

Keep an eye on the Eurozone Services PMI and Composite PMI for August, to be released today at 08:00 GMT, as it will influence the strength of the Euro.

Also Keep an eye on the RBA Interest Rate decision, to be released at 04:30am GMT on Tuesday 06th September. The RBA announced a rate cut from 1.75% to 1.5% on 2nd August. Therefore, it is more likely that the rate will remain unchanged this time.

AUDUSD turned bearish after Yellen’s hawkish speech on 26th August, yet it rebounded on 31st August after testing the significant support level at 0.7500. On 2nd September it tested significant resistance level at 0.76, where also the downtrend line resistance situates, then pulled back. It is currently testing the resistance level at 0.7600 again. If it is confirmed broken, the next resistance is at 0.7625, followed by 0.7656 and 0.7700. The support line is at 0.7550, followed by 0.7500. The daily time frame Stochastic Oscillator is crossing over upward, suggesting a rebound. If AUDUSD keeps on strengthening, then the chance of a further rate cut will be increased in the third quarter.