US Dollar Price Outlook: Market Risk Heightened On NFP Release

The July ADP report heavily missed expectations at 330k vs 695k. Now while the predictive value of ADP for NFP has been even more tenuous as of late, it does hold relevance for how markets may position themselves in anticipation of the NFP report. As such, this sets the bar low for NFP to surprise on the upside, even if the headline figure prints in line with expectations I would expect a pick up in the greenback.

Recent comments from Fed’s Clarida were more hawkish than markets had anticipated with the Vice-Chair stating that the economy has made progress toward goals and therefore would support a taper of asset purchases in December 2020. Alongside this, Clarida noted that he expects conditions for raising interest rates to be met by the end of 2022 if goals meet his forecasts. In light of these comments, it does raise the likelihood that Chair Powell will use the Jackson Hole Symposium at the end of the month (exactly one year after the announcement of average inflation targeting), to provide details regarding a Fed taper. That said, this would imply that there may be more riding on this NFP print than would’ve otherwise been the case before Clarida’s comments. In turn, should today’s NFP report print above market consensus, this may well provide the greenlight for a JH signal and thus see the USD stabilise heading into the central bank symposium. As a side note, bond yields look to have found a short term bottom, offering a layer of support for the greenback.

US 10 Year Yield Finds a Short Term Bottom

US Dollar Price Outlook: Market Risk Heightened on NFP Release

Source: Refinitiv

Aside from the soft ADP report, both ISM Mfg. and Non-Mfg. employment indices rose from the prior month by 3 and 4.5 points respectively and back into expansionary territory, which does provide some modest upside risks for the labour market report.

Scenario and FX Outperformer:

  • Strong Headline and details: USD likely to perform well vs CHF and NZD (front end rates priced very hawkish), following the good news = bad news for risk appetite mantra.
  • Softer NFP report: USD underperform vs EUR and AUD (market very short already).

US Dollar Price Outlook: Market Risk Heightened on NFP Release

Source: DailyFX

Taking a look at the chart, topside resistance is situated at 92.45, where the 20DMA resides, which also coincides with the 23.6% fib of the YTD range. On the downside, support sits at the July and August lows at 91.80.

US Dollar Chart: Daily Time Frame

US Dollar Price Outlook: Market Risk Heightened on NFP Release

Source: Refinitiv

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