It could be argued that this week has been the most volatile trading week of the year.
Between the final countdown to the Brexit vote, OPEC failing to reach an agreement on production cuts and US/Chinese trade tensions flaring up again, global financial markets have seen wide swings across the entire spectrum of risk assets.
In fact, the VIX volatility index (traded on the CBoE) has jumped from 16.25 on Monday to the current rate of 23.00, which is a 40% increase during just the last four days.
From a currency perspective, Forex traders will be focused on today’s US Non-farm Payroll (NFP) data scheduled to be released at 8:30 New York time.
The preliminary NFP forecast is for the headline number to show a 190,000 increase in new jobs, with an unemployment rate of 3.7% and weekly hourly earnings up .2% for the month of November.
Considering the recent speculation that the overall market volatility could force the FOMC lower their FED Funds rate trajectory, we consider the trade risk for the USD to be asymmetrically skewed to the upside.
In other words, we believe that the USD will rise more on a strong NFP report than it will fall on a weaker set of data. More specifically, we expect the USD to hold on to this week’s gains as long as the headline number prints above 165,000 and the weekly earnings increase by .2%, or better.
So far this week, the Aussie dollar has been the weakest currency within the G-7 pairs. The combination of a sluggish domestic GDP report and increased US/Chinese trade tensions has pushed the AUD/USD down over 2.5% to an overnight low of .7190.
Simultaneously, Aussie 10-yr bond yields have dropped over 16 basis points this week to a 14-month low of 2.44%, close to 40 basis points lower than the US 10-yr yields.
The next significant support level for the AUD/USD will be found in the .7160 area. A break of that support will likely see range extension down to .7120. We are currently holding short at .7310 with an initial target of .6980 and a .7355 stop.
The EUR/USD has been following a traditional “risk off” pattern with the pair rising as global equities trade higher and vice versa. EU data has printed better-than-expected, which has also lent support to the pair.
As such, we could see the single currency trade between 1.1310 and 1.1390 into the weekend. We are currently holding short from 1.1560 with an initial target of 1.1210 and a 1.1480 stop.
The technical picture in the Sterling remains neutral to negative with the GBP/USD trading below the 30-day moving average of 1.2852 and the daily RSI reading at 45.00 and pointing lower. Our trade suggestion to sell GBP/USD at 1.2835 was filled, which lowers our average price to 1.2855.
We suggest holding short from 1.2855 with an initial target of 1.2615 and a 1.2975 stop.
The USD/JPY has traded lower during the week and reached a three-month low of 112.20 yesterday. We have seen a series of options due to roll off today between 112.00 and 113.30, which could limit the post-NFP trading range.
Our trade suggestion to sell at 113.90 did not get filled, which leaves us short from 113.25. We suggest holding short from 113.25, or better, with an initial target of 110.40 and a 113.90 stop.
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