Markets are marking time, checking their watches and pacing the corridors before we get to the main event of the week, and possibly next few months. The first Friday of the month always brings the US monthly non-farm payrolls report and with it, market volatility.

And ordinarily, the Wednesday before also brings the release of the ADP private payrolls number, which this time around were much weaker than expected. This is raising increasing concerns that tomorrow’s NFP headline print won’t be strong enough to convince the Fed to announce tapering in September which would then be expected to kick off in November.

The job numbers are key in the eyes of the Fed, having ticked off the inflation part of their mandate.

Indeed, interest rate markets found no love or support from the above-consensus ISM manufacturing data. A print closer to 400k rather than 800k effectively means that the Fed’s condition of “further substantial progress” in the labour market will take longer to materialise, thus potentially delaying the tapering decision from September.

No surprises at the OPEC+ meeting

After much chatter, OPEC+ agreed to maintain their existing plan for gradual oil production increases. Ministers backed the 400,000 barrels-a-day output hike scheduled for October.

The group continue to believe that even though there remains plenty of uncertainty around the pandemic, fundamentals continue to improve.

The meeting’s outcome had little effect on oil prices as it was widely expected. Prices popped above $73 on Hurricane Ida, but we are now currently trading back at the 50% retracement level of the July-August drop at $70.39 where the 100-day moving average also resides.  The 50-day moving average has capped price rises so far at $72.48.

EUR/USD boosted by the ECB hawks

Well-known ECB hawks have been vocal over the last few days with inflation data earlier in the week giving them a pretty strong tailwind. Yields on Italian and German government bonds have climbed to their highest since mid-July on speculation ahead of the ECB decision next week that we might get some talk around reducing bond purchases.

EUR/USD is now firmly above trendline resistance from the June highs. A soft NFP print tomorrow could see more buyers come in and push the pair towards 1.19 and the late July high at 1.1908. On the flip side, the data could simply highlight the underlying economic superiority of the US and support the bearish case for EUR as the Fed begins its tightening cycle.

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