• Dollar Edges Lower as NFPs Solidify Investor Sentiment and Shake Out Remaining Volatility
  • Euro Traders Cautious of Favorable Forecasts from Officials’ When Yield Spreads Grow
  • British Pound Looks ahead to Next Week’s BoE Rate Decision for Underlying Trend
  • Canadian Dollar Could be the Most Speculatively Wound Major with the BoC Expected to Hike
  • Japanese Yen: Will the Bank of Japan Further Extend its Policy Effort or Take to Intervention?
  • Australian Dollar Traders Should Expect much Support from the RBA’s Policy Meet

Dollar Edges Lower as NFPs Solidify Investor Sentiment and Shake Out Remaining Volatility

Though liquidity was winding down quickly into the close of the week, we would nevertheless see a significant shift in the traditional market gauges for risk appetite Friday. With the help of a dubious nonfarm payrolls (NFP) report, risk appetite would start climbing before the US exchanges came online. The performances from the more sensitive asset classes were highlighted by a 1.3 percent advance from the S&P 500, a 7 bps rise in the 10-year Treasury note’s yield and 0.6 percent climb from EURJPY – all painting a consistent picture of improved risk appetite. Naturally, the safe haven US dollar would find itself on the opposite side of this positioning. However, the bearish progress marked is perhaps more discouraging than many would have afforded. With Friday’s performance, the Dollar Index closed a fourth consecutive daily loss and notched its lowest close since August 11th (a period when the currency was catalyzing its reversal from a two-month bear trend). A loose comparison between the price development of August and the two months that precede that; it is clear that that the ranks have been far more accommodative of selling the single currency than they have of buying it back up from ‘depressed’ levels. This does not necessarily establish a long-term bias for the greenback; but it is certainly something to keep in mind.

For the more recent swells in price action, today’s scheduled event risk would play a significant part – more than would have been expected. Though the August NFPs and ISM service sector activity reports are fundamentally important updates to the health of the US economy and notable market-movers in their own right; speculative interests were at a natural disadvantage Friday. Recently, we have seen the employment report (historically the greatest price driver for the US dollar on a consistent basis) temper its influence over price action as market participants took a big-picture view of labor. In turn, this would leave the market open to the natural withdrawal of liquidity into the weekend. A quiet end to the week was even more seductive given the fact that US markets (an important catalyst for speculative interests world-wide) would be closed Monday for an extended holiday weekend. Nevertheless, the smaller than expected 54,000 net loss in payrolls would be met with enthusiasm. IT helps that the previous month’s reading was revised up from a 131,000 to 54,000 contraction and that private payrolls had grown more than expected (by a net 67,000 new positions). Yet if we look at the details of this report, we see that the birth/death adjustment would account for a 115,000 increase to the overall figure, the broadest measure of unemployment rose to 16.7 percent (the standard merely advanced to 9.6 percent), and the total jobs added this year have tallied only 723,000. Considering the total number of American’s laid off in the preceding few years measured 8.4 million, it will take years at this pace to return to the ‘normal’ of just three years ago. As for the ISM non-manufacturing report, the 51.5 reading was a seven-month low for the largest sector in the economy. It is hard to distill lasting confidence from this data.

Looking ahead to next week, it will be a slow and choppy start for the greenback as US banks and exchanges will be offline Monday. However, beyond this lull, traders will look for prevailing risk winds and watch out for an expected policy announcement from President Obama.

Related:Discuss the Dollar in the DailyFX Forum, John’s Analyst Picks: Low Liquidity Requires Longer Term Trades Like EURUSD, USDJPY

Euro Traders Cautious of Favorable Forecasts from Officials’ When Yield Spreads Grow

Outside of the infectious and constant influence of investor sentiment, the euro would not find much fundamental drive from an otherwise quiet Friday session. The docket brought the final readings of the service sector activity reports for August (the Eurozone measure was revised modestly higher) and the regional retail sales report for July. The consumption figure offered a mixed update with a disappointing 0.1 percent increase for the month and stronger 1.1 percent annual read. Despite the questionable fundamental mix, however, the shared currency would still surmount a three-week high against the dollar, book an impressive bullish reversal against the Swiss franc and win a fourth advance versus the pound. This seems a continued effort to unwind the risk premium that was revived when financial uncertainty was stirred. It is difficult to see this recovery making too much progress though as Greek yield spreads near record highs and the EUR/USD Libor spread hits a 14-month high.

British Pound Looks ahead to Next Week’s BoE Rate Decision for Underlying Trend

The UK’s sole PMI service sector gauge for August did little to help the sterling with a 16-month low from an otherwise vital component of an unstable economy. Fundamental activity may have a little more influence next week though with a number of big events topped by the BoE rate decision. The central bank will not change its rates; but will an ECB, BoJ and Fed expansion of stimulus encourage the MPC to do the same?

Canadian Dollar Could be the Most Speculatively Wound Major with the BoC Expected to Hike

USDCAD was one of the biggest movers when the market processed the confidence-boosting US employment data. Ultimately, this was a move conceived and interpreted through Canada’s economic links to the US; but next week, the northern neighbor may pave its own way. The BoC rate decision is perhaps the biggest piece of scheduled event risk with economists predicting a 25 basis point rate hike to 1.00 percent.

Japanese Yen: Will the Bank of Japan Further Extend its Policy Effort or Take to Intervention?

Quoting unnamed officials today, a Bloomberg article proposed that Japanese policy makers were hesitant to intervene on behalf of their currency for fear of US disapproval. The yen is extraordinarily high against most of its counterparts; and it is a real struggle to support growth and normal market functioning. For this reason, we will look to the Bank of Japan for guidance on what to expect for growth and policy.

Australian Dollar Traders Should Expect much Support from the RBA’s Policy Meet

With investor confidence bolstering growth-dependent markets Friday, it comes as no surprise that the high-yield Australian dollar would put in for an advance of its own. For the week ahead, the currency will be especially dependent on this exogenous push. Without it, traders will be left to suffer the disappointment of a hold on interest rates and a probably bearish slant on the economy from the RBA.

For Real Time Forex News, visit: http://www.dailyfx.com/real_time_news/

**For a full list of upcoming event risk and past releases, go to www.dailyfx.com/calendar

ECONOMIC DATA

Next 24 Hours

Currency

GMT

Release

Survey

Previous

Comments

GBP

Halifax House Price (3MoY) (AUG)

4.4%

4.9%

House prices rose in July, ending a three-month slide.

GBP

Halifax Plc House Prices s.a. (MoM) (AUG)

-0.5%

0.6%

GBP

New Car Registrations (YoY) (AUG)

-13.2%

Declined in July after 12-month rise.

NZD

12:00

QV House Prices (YoY) (AUG)

4.1%

July reading lowest since 2009.

AUD

23:30

AiG Performance of Construction Index (AUG)

43.3

Sits at lowest level since Aug. 2009.

AUD

0:30

TD Securities Inflation (MoM) (AUG)

0.1%

Australia’s annual inflation gauge fell in July on lower food prices.

AUD

0:30

TD Securities Inflation (YoY) (AUG)

2.8%

AUD

1:30

ANZ Job Advertisements (MoM) (AUG)

1.3%

Adverts rose in last 3 months.

EUR

8:30

Euro-Zone Sentix Investor Confidence (SEP)

9.0

8.2

Increased to 2-year high in August.

Currency

GMT

Upcoming Events & Speeches

USD

-:-

US Markets Close for Labor Day Holiday

SUPPORT AND RESISTANCE LEVELS

CLASSIC SUPPORT AND RESISTANCE – 18:00 GMT

Currency

EUR/USD

GBP/USD

USD/JPY

USD/CHF

USD/CAD

AUD/USD

NZD/USD

EUR/JPY

GBP/JPY

EUR/GBP

Resistance 2

1.3815

1.6375

95.05

1.0600

1.0922

0.9850

0.7635

127.60

146.05

0.8725

Resistance 1

1.3500

1.5965

89.00

1.0460

1.0750

0.9335

0.7440

120.00

140.00

0.8600

Spot

1.2896

1.5452

84.31

1.0164

1.0388

0.9166

0.7207

108.73

130.27

0.8336

Support 1

1.2500

1.5125

83.00

1.0130

0.9950

0.8100

0.6850

103.80

125.00

0.8065

Support 2

1.2150

1.5000

80.00

0.9960

0.9700

0.7835

0.6585

100.00

119.00

0.7780

CLASSIC SUPPORT AND RESISTANCE EMERGING MARKETS 18:00 GMTSCANDIES CURRENCIES 18:00 GMT

Currency

USD/MXN

USD/TRY

USD/ZAR

USD/HKD

USD/SGD

Currency

USD/SEK

USD/DKK

USD/NOK

Resistance 2

14.4500

1.8025

8.7915

7.8165

1.4945

Resistance 2

7.7500

5.7800

6.2750

Resistance 1

13.8500

1.6755

8.3675

7.8075

1.4655

Resistance 1

7.5800

5.5400

6.1150

Spot

12.9335

1.5000

7.1953

7.7708

1.3433

Spot

7.2212

5.7725

6.1039

Support 1

12.0500

1.4500

7.1615

7.7490

1.3440

Support 1

1.1650

5.3000

5.8000

Support 2

11.7200

1.3665

6.6950

7.7450

1.3000

Support 2

7.0000

5.1000

5.6000

INTRA-DAY PIVOT POINTS 18:00 GMT

Currency

EUR/USD

GBP/USD

USD/JPY

USD/CHF

USD/CAD

AUD/USD

NZD/USD

EUR/JPY

GBP/JPY

EUR/GBP

Resistance 2

1.2955

1.5513

85.64

1.0292

1.0630

0.9245

0.7272

110.36

132.57

0.8382

Resistance 1

1.2925

1.5483

84.97

1.0228

1.0509

0.9205

0.7239

109.54

131.42

0.8359

Pivot

1.2867

1.5435

84.56

1.0174

1.0447

0.9136

0.7185

108.73

130.53

0.8326

Support 1

1.2837

1.5405

83.89

1.0110

1.0326

0.9096

0.7152

107.91

129.38

0.8303

Support 2

1.2779

1.5357

83.48

1.0056

1.0264

0.9027

0.7098

107.10

128.49

0.8270

INTRA-DAY PROBABILITY BANDS 18:00 GMT

Currency

EUR/USD

GBP/USD

USD/JPY

USD/CHF

USD/CAD

AUD/USD

NZD/USD

EUR/JPY

GBP/JPY

EUR/GBP

Resistance 3

1.3054

1.5634

85.40

1.0286

1.0517

0.9294

0.7313

110.50

132.43

0.8423

Resistance 2

1.3015

1.5589

85.13

1.0256

1.0485

0.9262

0.7287

110.05

131.89

0.8401

Resistance 1

1.2975

1.5543

84.85

1.0225

1.0452

0.9230

0.7260

109.61

131.35

0.8379

Spot

1.2896

1.5452

84.31

1.0164

1.0388

0.9166

0.7207

108.73

130.27

0.8336

Support 1

1.2817

1.5361

83.77

1.0103

1.0324

0.9102

0.7154

107.85

129.19

0.8293

Support 2

1.2777

1.5315

83.49

1.0072

1.0291

0.9070

0.7127

107.41

128.65

0.8271

Support 3

1.2738

1.5270

83.22

1.0042

1.0259

0.9038

0.7101

106.96

128.11

0.8249

v

Written by: John Kicklighter, Currency Strategist for DailyFX.com

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