- Surprise dip in US manufacturing ahead of NFP
- It’s either/or day for the dollar
- Unexpectedly weak NFP would boost GBPUSD
- Three-day US weekend and G20 in China lie ahead
The blurred picture of the US economy should clarify with today's NFP data. Pic: iStock
By John J Hardy
The ISM manufacturing survey caught the market off guard yesterday after the USD was heading stronger this week, as the overall survey dipped below 50 again, suggesting contraction in US manufacturing, with new orders likewise plunging below 50 and the employment index falling further to a miserable 48.3. Of course, the ISM non-manufacturing report next Tuesday carries more weight as an indicator for the momentum of the US economy, and was strong in July, but this has the market nervous ahead of today’s payrolls data.
There is considerable noise that August has shown the most consistent seasonal dip in the data series, and if we argue in favour of mean reversion of data from month to month, the July +255k number suggests the risk of undershooting.
The risks are distinctly two-way, with a notable disappointment (well below 150k with earnings also disappointing) probably spelling another dip in the greenback’s fortune. Conversely, a strong payrolls number (the bar perhaps a bit lower now that we got USD traders on the back foot after yesterday’s ISM manufacturing miss, so let’s say slightly better than expected with an as expected or better earnings growth or firm household survey) could get the USD rally back on track.
I would suggest that a loud upside surprise in both payrolls and earnings brings a significant upgrade in the odds for a September 21 rate hike.
Note that we have a three-day weekend for the US, with Monday’s Labor Day marking the traditional end-of-summer. It also marks the beginning of what is traditionally the most volatile season for stocks.
Do note that we have a G20 meeting over the weekend, and as we indicated yesterday, the implications for the yuan weakening are possibly that China resumes weakening its currency some time after the meeting, though if it has any larger revaluation plans up its sleeve, one would think that they would prefer to wait until after the US election to avoid favouring Trump.
Cable looks spring-loaded for further gains if US jobs numbers today are weaker than expected after yesterday’s UK PMI Manufacturing survey ripped to a 10-month high, suggesting a strong rebound after the uncertainty induced by the Brexit vote. The 1.3500 level to the upside looms as a key level, as it was the prior multi-decade low.
The G-10 rundown
USD – it’s either/or day for the dollar, with perhaps merely in-line data needed to keep the USD rally on track, but this could fall either way, and we have a three-day weekend that could either mean a reluctance to draw any dramatic conclusions if the data is mixed, or a sprint for positioning unwinding on a notable surprise.
EUR – EURUSD upside swing zone is 1.1200/50, while the 200-day moving average has developed as the support level of note in the low 1.1100’s. Preferring the downside, but negative US data surprise could mean another bout of limbo in the higher zone.
JPY – a Bank of Japan official making more noise on deepening existing programmes this time around rather than innovating, which could actually be enough to weaken the JPY this time around if the market is dealing with a more hakwish Fed at the same time. Stay tuned – and notable that USDJPY so springy off yesterday’s lows.
GBP – GBPUSD at important levels after the strong UK manufacturing PMI yesterday and perhaps ready for a notable squeeze if the US data is weak. Note the construction PMI today from the UK as a possible distraction.
CHF – weaker, possibly on the negative yield theme and watching the last zone of resistance in USDCHF if the US data beats today.
AUD – The Reserve Bank of Australia meeting next week not expected to bring any rate reductions, but market will look at the latest guidance as well as the latest GDP numbers mid-week. Meanwhile, we’ll look for whether the AUDUSD chart confirms the recent topping out and attempt at setting the bear in motion over the next few sessions or swings back higher again.
CAD – ugly plunge in oil prices putting pressure on CAD and even keeping USDCAD from a notable selloff despite the USD weakness elsewhere yesterday. Would expect little downside potential even on weak US data and prefer to focus on the upside in USDCAD as long as the pair remains clear of 1.3000.
NZD – with the negative yielders under the most pressure recently, NZD shining in relative terms. In NZDUSD, are we ever going to resolve the status of this 0.7300 area? Today seems a good bet for the market making a statement, either way.
SEK – again, don’t know if we are detecting a pattern here, but the market seems to not like the negative yielders here and EURSEK has pulled within striking distance of the big 9.600 level that has mostly contained the action ahead of next week’s Riksbank and ECB meetings.
NOK – EURNOK trying to decide whether it will break into the top half of the long-standing range as weak crude oil prices weigh.
Upcoming Economic Calendar Highlights (all times GMT)
- 0800 – Norway Aug. Unemployment Rate
- 0830 – UK Aug. Construction PMI
- 1230 – Canada Jul. International Merchandise Trade
- 1230 – US Jul. Trade Balance
- 1230 – US Aug. Change in Nonfarm Payrolls (+180k), Unemployment Rate, Average Hourly Earnings
- G20 Summit this weekend
– Edited by Clare MacCarthy
John J Hardy is head of FX strategy at Saxo Bank