Today is the first Friday of the new month and as usual the spotlight falls on the Non-Farm Payrolls report from the US which will help shape Dollar's outlook for the month ahead. The US employment report will offer fresh insight on the health of the domestic labor market which has been the primary catalyst for the strength seen in the greenback this year. At the same time, British Prime Minister Theresa May's meeting with her cabinet members will also make headlines today with the odds of a falling out climbing higher over the past few hours.
Starting with the US NFP report, expectations are set for a positive reading today with the consensus calling for 190k jobs added in the US labor force last month. More bullish expectations from several investment houses call for a number close to 200k while Average Weekly Earnings are expected to print at a robust level of 0.3% month-on-month gain. Clearly the market is positioning for a positive report with the Dollar gaining since yesterday but with such high expectations the risk of a miss looms as well.
Nevertheless, the base scenario still remains in favor of a strong NFP reading and in this case the Dollar should receive fresh demand across the board. Should the report meet expectations then the greenback will push higher: the European majors, the Yen and the commodity dollars will be the primary targets for traders looking to take advantage of the rally. The Euro is weak below 1.1650, the Pound has 1.32 as the intra-day support while Dollar/Yen could hit 111.20 today.
In the off chance that the report misses though, it's likely that it will catch a lot of traders on the wrong foot. In this case, the most interesting opportunities are found on the Loonie and Gold. The Canadian currency has an intra-day support at 1.3120 and a break below exposes the 1.3040 area while Gold treads water below $1,260. A softer than expected NFP reading will drive prices above this figure and the rally could reach as far as $1,270.
The Pound gave up its gains yesterday to trade close to the 1.32 area ahead of today's meeting between PM May and her ministers. There are a lot of rumors that her cabinet is not happy with her latest proposal so the odds of a disastrous outcome are high. Even if May is able to pressure her lieutenants to agree on a solution this is unlikely to be well received by Brussels so again the downside risk is significant. For the British currency, a move below 1.32 triggered by bearish news from Britain will clear the path towards the 1.31 mark.
On the commodities' side, Oil is trading sideways for the past couple of days as suggested by our research team earlier this week. $73 seems to be the support level for now and as long as we trade above this then the potential of fresh highs remains on the table with the $77 area still our first target. Gold spent the past 2 days on a sideways pattern and today's NFP report could act a the breakout catalyst. To the upside, the level we're focusing on is the $1,270 mark while fresh downside pressure will drive prices towards the $1,245 area.
Equities in Asia are trading in a sea of green taking Donald Trump's trade tariffs against China in their stride. The European and US futures are also pointing higher suggesting a positive opening bell for the last session of the week. It is interesting to see that stock traders remain unfazed in the face of this opening salvo of levies from the US and ahead of China's expected response. Whether this is a sign of complacency or a suggestion that investors have grown accustomed to this continued spat remains to be seen but in any case caution is advised.
MARKET EVENTS TO WATCH
- US Non-farm Payrolls - 4.30pm
- US Average Hourly Earnings - 4.30pm
All times are GMT +4.