The start of a new month is always one of the most optimistic times in the market with Non-farm payroll due out in the market and expectations building that this will be the catalyst that helps encourage a rate rise in the December from the FED. Expectations, however, are weak for expansion with 80k being currently priced in by economists, nevertheless we have to look back to June 2016 for a reading below 90K which certainly bodes well for this reading. The main issue though has been the recent hurricane with some analysts expecting that to have an impact of -125K jobs hence the 80k forecast people are predicting. So with weakness priced in at present the USD has not looked as strong, but it also means that if we do see a strong result we could see a very strong rally.
I feel this is ideally situated for the EURUSD, which at present has been an interesting trade. The Spanish unrest is having a flow on effect for the Euro which has struggled with the independence vote. It’s unlikely to cause anything at present, but it may create problems in the long run for some member states of the Euro-zone. The USD on the other hand has been getting stronger and a good Non-farm could see it take back a lot of ground against the Euro. Support levels are currently holding at 1.1719, with the potential of further falls to 1.1621 and 1.1513. If we do see the bulls come back into the market and push the USD out the way then resistance at 1.1799 and 1.1915 are likely to be the only things slowing down the Euro rally. The 20 day moving average should also be watched as it historically can be a saviour when levels are failing.
The Pound might have fallen today, but equity markets were on fire as they continued to rise globally and the FTSE was leading the charge as mentioned yesterday. No surprises here as the bulls are looking very strong, however if we are seeing a rate rise equity markets could lose their lustre as bonds come back into vogue for investors. Either way from a technical perspective there is a strong case for some volatility on the horizon and the flag patterns we so commonly see with the FTSE are likely to repeat yet again.
With the FTSE climbing fast I am expecting to see a few things, a quick pop at the trend line (historically common) and the market looking to make its mind up. We’ve already seen a rejection and the market will be looking for another, but if we see a push through then all bets are off and I would be looking at resistance at 7551 with the possibility of it testing new highs at 7600. If we see a rejection and a rush back down to support then 7436 and 7319 are likely to be important targets.