Ahead of today’s first non farm payroll numbers of the last quarter it’s ironic to think that a forecast of 178k is supposed to be good news given that the US needs to create a minimum of 500k new jobs in order to tread water, let alone cement any economic recovery in the longer term.
However, as traders we simply have to work with what we are given, namely incomplete data, massaged statistics and the usual blend of smoke and mirrors. Rant over!!
Moving to the daily US dollar index chart what are we likely to see for the dollar in the short and medium term. The first point of note is the platform of support which has helped to provide the dollar with a modicum of bullish sentiment, taking it from 10650 up to last night’s close at 10,787.52. Progress here has been laboured, to say the least, with the index struggling to break away from the 10500 price zone and with a short term resistance level now in place at 10810. This phase of price action is also very clearly defined on the volume at price histogram, and also neatly describes the upper and lower levels of support and resistance which are now likely to come into play over the next few days.
Any move beyond the 10,810 zone should then provide a platform of support for a move to test the 10,900 high of early August. However, should we see a failure at this level we should expect to see 10,700 support tested, and if this is breached expect to see a move to test the 10,650 support platform once again.
Returning to today NFP data the significance of this release is not just how the figure relates to the forecast (good, bad or indifferent), but more importantly how this will then be perceived by the FED and its influence on the start of the taper program.
Today’s release is perhaps one of the most important since the start of the financial crisis, not because of the significance of the number, but because of the importance the FED are placing on it as the catalyst for their decision. It is interesting to note that the last four releases have all come in at over 160k and accompanied by a ‘fall’ in the headline unemployment rate, so it would not be unreasonable to expect a figure in this region. However, bear in mind there will always be the summer hiring effect which often helps to boost this number, so do not be surprised to see the number exceed forecast.
It is the extent to which any number exceeds forecast which will determine the start (or not) of the taper program. However, whatever the number one thing we can be sure of is that markets will react, and react violently.
By Anna Coulling