Beaten Dollar Waits for NFPs

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Market Drivers September 1, 2017
UK PMI Construction beats
AU Manufcaturing better
Nikkei 0.28% Dax 0.52%
Oil $47/bbl
Gold $1318/oz.

Europe and Asia:
AUD AIG PMI 59.8 vs. 56
GBP UK Manufacturing PMI 56.9

North America:
USD NFPs 8:30
USD ISM Manufacturing 10:00
USD U of M 10:00

It’s been a typical night of quiet trade in the FX market as traders gear up for the marquee event of the week – the US Non-Farm payroll data due at 12:30 GMT.

All the majors were subdued ahead of the event holding 20 pip ranges throughout Asian and early European trade. In UK the PMI manufacturing results helped lift the pound briefly towards the 1.2950 level after the number came in 56.9 versus 55 with all five components showing improving growth. Manufacturing is a far smaller part of the UK economy than services but it could point to a decent PMI services reading next week.

The August NFPs are expected to come in at 180K which would right in line with average growth this year. There are several confusing signals ahead of the report with ADP numbers indicating that job growth could be significantly stronger while historical analysis suggesting a possible miss. In 16 of the past 20 years August reports tended to miss their mark as seasonal adjustments created lower first readings.

Any poor showing of NFPs combined with lackluster wage could sink the dollar for good. Market sentiment is already highly skeptical of any Fed rate hike in December and a weak showing would only diminish the odds of any tightening. Furthermore, the Fed has been plagued by lack of any inflation pressures in the US economy so if average hourly earnings which are expected to rise only 0.2% also print cooler than forecast the greenback will see another wave of selling with EURUSD likely returning to 1.2000 and USDJPY plunging back to the 108.00 figure.

A blowout number. However, could really turn the sentiment around. The buck has been woefully oversold for weeks and the short dollar trade has become quite crowded. All of this is occurring despite any concrete evidence of weakness in the US economy. At worst US economy has shown steady growth but lack of inflation and the fundamentals have not merited such a steep selloff. That’s why if August NFPs show a strong acceleration in both jobs and wages, the short covering rally could be significant.

Boris Schlossberg
Managing Director

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