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Roller-coaster Friday

Volatility will abound today as we have the second US employment report for the Fed to consider at its policy meeting later this month. The daily range for EURUSD is around 30% higher on NFP days vs. other days over the past 2 years, but that has increased if you look at the past 6 months, where the range has been 50% above the average of all days. This underpins the view that the volatility risks are greater than usual for the August numbers. The expectation for a 180k gain would be in line with the 6-month average, so we’d need to a number above the 255k gain seen in July to really put the market on course for pricing in a September move. Nothing would be certain though as even Fed hawks have been reluctant to fully commit, so volatility will likely continue around US data until the 21st September FOMC announcement.

The weaker than expected ISM data yesterday took some of the wind out of the dollar’s sails, the headline index falling to levels last seen in February of this year. This adds to the pile of US data that has become noisier of late, not helped by swings in inventories. This is also why we’ve seen a wide spread of views from Fed officials in recent weeks with regards to the policy outlook. Correctly, Yellen has avoided fully committing to guidance signalling a September move, having been caught out once too often on this front in the past couple of years.

The Dollar Index (DXY) plunged sharply yesterday, as the US ISM Manufacturing PMI and ISM Prices Paid figures for August were both lower-than-expected. The two significant support levels, at 96.00 and the 50% Fibonacci retracement level at 95.80, were both broken. The price tested the next support line at 95.60 and held. If the NFP and Unemployment Rate figures, to be released today, are better-than-expected, DXY will likely rally and break the newly formed resistance level at 95.80. The next resistance level is at 96.00, followed by 96.23, 96.50 and 96.70. With lower-than-expected figures, DXY will likely break the support line at 95.60, and further test the next support lines at 95.40. The next support line is at 95.00, followed by 94.73. For EURUSD, on the 4 hourly chart, EURUSD broke the downtrend line resistance with a long bullish candle, and is currently trading below the resistance level at 1.1200. On the upside, stronger data could see EURUSD rally and break the resistance level at 1.1200. The next resistance level is at 1.1240, followed by 1.1268, 1.1300, 1.1327 and 1.1350. On weaker numbers, EURUSD will likely pullback and test the newly formed downtrend line support at 1.1175, and further test the next support level at 1.1157, followed by 1.1130, 1.1100 and 1.1070.

Looking at cable, on the 4 hourly chart, the three significant resistance levels were broken yesterday by a long bullish candle, including the downtrend line resistance, as well as the resistance levels at 1.3200, and 1.3250. The next key resistance level is at 1.3350, followed by 1.3400 and 1.3480. With better-than-expected figures, GBPUSD will likely pullback and break the newly formed support line at 1.3270 and 1.3250. The next support level is at 1.3230, followed by 1.3200 and 1.3181.

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