Article / 02 September 2016 at 14:30 GMT

FX 4 Next Week: Beyond US jobs, back to the central banks

Head of FX Strategy / Saxo Bank
  • Strong USD close could see greenback rally
  • Robust data could continue to power GBP higher
  • 'Looking for excuses' to sell soft loonie
  • NOK appears set to head lower versus euro
Soft jobs release
The US jobs scene was quieter than many expected in August, but the NFP shortfall 
is far from the only driver in USD and the G3 space. Photo: iStock

By John J Hardy

It can be a difficult task to assess the lay of the land for currencies in the immediate wake of the key US data point of the month. The US jobs report was certainly weak, but it’s not entirely clear that these data are the key focus for the market. 

There are, in fact, an array of other themes – like the bevy of central bank meetings next week – on the radar. 

So let’s see how we close the day/week here before drawing conclusions on the USD direction...

Further USD upside if post-jobs report USD reversal sticks

The US jobs report, together with next Tuesday’s ISM non-manufacturing survey (on Tuesday – recall that US markets are closed on Monday for a national holiday) are key for the USD outlook next week, if the market focus is the data. 

A close to the strong side for the greenback today would be a strong tell that economic data are weighing less and that the market wants to buy US dollars for other reasons. The best quality signal from here would be for the USD to close firmer today as it sends a stronger statement than the alternative. 

Trading stance: Traders wanting to buy USD will look for the full extent of Friday’s post-payrolls release selloff to reverse, encouraging (for example) fresh EURUSD shorts with stops above 1.1250 for a try below 1.1100 next week. Another example would be an AUDUSD short if the pair reverses all post-US payrolls release gains for a try toward 0.7380 or lower next week (note the important Reserve Bank of Australia meeting next Tuesday.) 

As USDJPY set new highs for the day after the jobs report, traders may look for a 105.00 test next week.

GBP upside

Sterling surprised the shorts this week following a very strong UK Manufacturing PMI on Thursday, with Friday’s Construction PMI also bouncing back to not far below the 50 level. 

Looking forward to next week’s calendar, we have the UK August Services PMI on Monday as perhaps the chief tone-setter for sterling in the near term after these positive data surprises, with shorts risking a further squeeze next week if the Services print shows a UK economy that is recovering quickly after the June Brexit vote.

Trading stance: Given all of the focus on the USD after the US payrolls, traders may look elsewhere for expressing a purer GBP view, particularly at either GBPJPY (high beta) or EURGBP (lower beta, though possibly not over next Thursday’s European Central Bank meeting). For example, looking for EURGBP toward 0.8350/25 and even 0.8250 as long as we remain south of 0.8500.

Picking up USDCAD on the dips

It’s a busy calendar for the Canadian dollar next week, with the Bank of Canada meeting mid-week and the Canada employment report up on Friday. Generally, we are looking for excuses to sell the Canadian dollar on structural fundamentals and the BoC is unlikely to signal much more than “wait and see” for now.

Trading stance: Traders may look to buy USDCAD as long as it is maintaining the price action above the 1.3000/1.2950 zone for a try toward the 1.3250 resistance and possibly higher for those interested in longer term or options positions out one or two months.

EURNOK lower on bearish reversal

The NOK has struggled this week versus the euro as oil prices saw a brutal slide lower, but the fallout for NOK was relatively contained, suggesting that the market may have a tough time driving the pair lower with the ECB on the horizon next week.

Trading stance: Looking for probe below 9.20 if the pair closes well below 9.30 today (which suggests a bearish reversal) or early next week. A squeeze back higher through 9.32 negates this idea.

Crude oil
A further bearish turn in crude oil would could weigh heeavily on CAD and NOK. Photo: iStock 

— Edited by Michael McKenna

John J Hardy is head of FX strategy at Saxo Bank

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