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Employment Data Key Market Event Risk

By OFX

The US dollar’s advance stalled through trade on Thursday as investors appeared to take stock of Wednesday’s push through key technical resistance handles, and consolidated positions ahead of Friday’s jobs report. Having driven through 11-month highs, the dollar moved marginally lower as markets evaluated the impact of a route on global government bonds amid speculation and uncertainty across emerging markets, Europe and China.

More generally, the USD dollar continues to outperform as strong domestic growth and a hawkish central bank paint a positive picture moving through the latter half of 2018 and onward into 2019, a stark contrast to broader global uncertainty and measured macroeconomic policy outlooks. While an argument can be made for a widespread USD correction, the strains of emerging markets should continue to fuel demand for the greenback while the potential burgeoning gap in central bank interest rates ensures the dollar remains an attractive carry option.

Attentions now turn to todays’ jobs and wage growth print. Particular focus will be afforded to the Average Hourly Earnings report for a broader inflationary outlook. It will be critical in guiding short-term direction.

The Loonie was hit from many fronts yesterday, recording a decline of 50 pips on a daily basis. Opening this morning at 0.7742 against its US counterpart, the Canadian Dollar felt the effects of a strengthening Greenback, softening oil prices and poorer IVY PMI print.

The CAD was also unsupported in the commodity markets with a sharp fall witnessed in crude oil prices. West Texas Intermediate had rallied to the highest level in nearly four years Wednesday, touching $76.9 per barrel to reverse course and fall $2 on the day ultimately.

Moving into Friday trade, Canada looks to employment, unemployment rate readings and Trade Balance figures.

The Euro edged higher through trade on Thursday staving off a consolidated push below support at 1.15 and edging back above this key technical handle. Having touched intraday lows at 1.1463, the 19-nation combined unit advanced on news Italy would review its deficit targets and reduce debt over the next three years.

Touching intraday highs at 1.1535 the Euro opens this morning marginally lower but still comfortably above supports at 1.1512. Attentions now turn to US employment data for direction and guidance into the weekend while Italian political developments ensure headline risk continues to drive short-term volatility. We continue to watch moves around 1.15 as a consolidated break and a weekly close below this target and yesterday’s low could signal a broader downward correction.

After reaching a floor of 1.2920 for the Great British Pound overnight, movements were positive following Prime Minister Theresa May being backed by Ireland over her border proposals. May in her speech at the Conservative Party Conference in Birmingham overnight said she was committed to securing a deal that is positive for the local economy.

Sterling saw a gradual rally higher during the European session, pushing once again through the 1.30 handle to reach intraday highs of 1.3035 despite better than expected unemployment claims in the United States.

This evening sees the release of Halifax HPI figures which measures the price of homes financed by HBOS. A raft of data out of the United States including Non-Farm employment change is likely to influence the GBP/USD cross and determine whether the cable can maintain levels above support at the 1.30 handle.

The Aussie dollar was again amongst the worst performing currencies on the day on Thursday as global equities fell sharply, and rumors of Chinese industrial espionage ensured trade tensions remained on the minds of investors. AUD/USD went as low as 0.7066 (lowest since Feb 2016) as risk appetite retreated, primarily driven by the surge in US Treasury yields and the subsequent pricing of riskier assets. On the trade war front, US Vice presidency pence accused Chinese security agencies of stealing US technology including military blueprints.

The fall in the AUD/USD represented a 0.4% decline on the day while the AUD/NZD cross largely traded sideways, oscillating around the 1.0900 level amid the deterioration in risk appetite. Thursday was light on the data front as we head into a packed Friday session. We see August retail sales out of the domestic economy with markets anticipating a 0.3% increase following July’s flat read. The key global risk event for the day is the non-farm payrolls due out of the world’s largest economy; markets are pricing an increase of 184K with the unemployment rate expected to retreat from 3.9% to 3.8%.

If the USD remains elevated, the next technical support is 0.7025 on the downside while any topside moves are expected to meet resistance at 0.7144 before the key psychological level at 0.7200.

The New Zealand Dollar has fallen to its lowest level in more than two years against the Greenback on the backdrop of hawkish comments from Fed Chairman Jerome Powell bolstering expectations of an interest rate hike in December. The NZD/USD was dragged lower on Wednesday night on the back of upbeat US data and has continued to fall as the Fed look towards a possible rise in December. The NZD/USD touched a low 0.6474, a level not witnessed since Jan 2016.

The local calendar is once again non-existent, markets will turn their attention to this evenings US Non-Farm payroll numbers and the official Unemployment rate. US non-farm payrolls are expected to rise by 185k, and the unemployment rate is seen falling to 3.8% from 3.9%.

On the technical front, we see support sitting at 0.6445 followed by 0.6400. On the upside, resistance lies at 0.6520.