The Daily Forex

Forex Daily Technical Report

Non-Farm Payroll to Trigger Market Volatility and Carry Trades

Markets’ attention are all turning to today’s Non-farm payroll report. After a solid number of 110k job growths shown in Sep, economists expect job growth to slow slightly to 88k in Oct, with unemployment rate staying at 4.7%. Leading indicators of NFP generally suggest an upside surprise in today’s data. Wednesday’s ADP private employment report showed 106k job growths in the private sector which in turn indicates that the NFP could be in the region of 125-130k. Challenger report also showed a sharp fall in layoffs fro 71k to 63k. Yesterday’s ISM manufacturing report also showed its employment component improved slightly from 51.7 to 52, highest since Apr. However, recent high readings in weekly jobless claims are putting some doubt on the optimistic view on NFP.

Nevertheless, considering the volatility in yen crosses and its correlation with the stock markets, reaction in the forex markets to the NFP may not be that straight forward. On the one hand, a strong NFP number will likely provide boost to the greenback as well as the stock market which in turn prompt selling of yen. In such case, high yields could be boosted up in respective yen crosses on carry trade and in turn put pressure back to the greenback. Hence, going long in carry trade yen crosses, like AUD/JPY could be a better choice in case of a strong NFP. On the other hand, a weak NFP will put some pressure on the dollar and the US stock markets, which could send the yen higher on risk aversion. Other currencies would then be pressured in their yen crosses, then limiting their rally against dollar. Hence, in such case, selling of USD/JPY could be a better choice.

Monthly Change in NFP (k)

Unemployment Rate (%)

Just released, Swiss CPI rose 0.9% mom, 1.3% yoy, above expectation of 0.8% mom, 1.2% yoy. Canadian employment report will also be looked into. Unemployment rate in Canada is expected to stay at a 30 year low of 5.9% with 12k job growths in Oct. Note that USD/CAD has just recovered mildly from multi decade low as oil prices retreats mildly but the down trend is still in play. Other data to be featured today include Manufacturing PMI in Eurozone and Construction PMI in UK as well as factory orders in US.

Read full report (EUR/USD, GBP/USD, USD/CHF, USD/JPY, EUR/JPY) here.

USD/JPY

Daily Pivots: (S1) 114.10; (P) 115.01; (R1) 115.55; More.

USD/JPY turns sideway after reaching as low as 114.35. As discussed before, with 4 hours MACD dragged below signal line, corrective rebound from 113.23 should have completed at 115.91 already, limited below mentioned 116.16 resistance as expected. Fall from there is now tentatively treated as resumed for 113.23 low first. Break will confirm this case and bring retest of 111.59 low. Meanwhile, above 115.15 will indicate lengthier consolidation would be seen before another fall.

In the bigger picture, note that prior break of long term rising trend line (101.65, 108.99) indicates the the whole up trend from 101.65 has completed at 124.13 already, with bearish divergence condition in weekly MACD and RSI. Subsequent sharp fall from 124.13 has made a short term low at 111.59 and rebound from there is treated as correction to this fall only.

Current fall from 117.93 is tentatively treated as resumption of whole fall from 124.13. Firm break of 111.59 low will confirm this case and bring decline to next cluster support zone of 61.8% retracement of 101.65 to 124.13 at 110.23 and 61.8% projection of 124.13 to 111.59 from 117.33 at 109.58 first.

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