Mid-Day Report: Dollar Retreats Mildly as NFP Disappoints

Dollar retreats mildly against Euro and yen in early US session after lower than expected employment data. Non-farm payroll grew 142k in August versus expectation o 216k. That’s the smallest gain this year. Meanwhile, unemployment rate dropped from 6.2% to 6.1% as expected. That was also accompanied by a fall in participation rate from 62.9% to 62.8%. Dollar’s loss against Euro is limited so far and the common currency remains broadly weak after yesterday’s ECB inspired selloff. Yen, on the other hand, is trying to gather some broad based momentum to close the week with a strong note.

The Canadian dollar struggles to find a direction as it’s also troubled by weak employment data. The Canadian job market contracted -11k in August, comparing to expectation of 10.3k growth. Unemployment rate was unchanged at 7.0%. Other data released today saw Eurozone GDP unrevised at 0.0% in Q2. German industrial production rose 1.9% mom in July. Swiss foreign currency reserves rose slightly to CHF 453.8b in August. Japan leading indicator rose to 106.5 in July.

Yesterday, ECB President Mario Draghi shocked the market and announced that the ECB would start purchasing asset-backed securities and covered bonds in October. The act aims to increase liquidity to the financial system and stimulate growth. The ECB announced to cut the main refi rate by -10 bps to 0.15%. Correspondingly, it also lowered the bank overnight deposit rate to -0.2% and the marginal lending rate to 0.3%. The euro slumped against the Us dollar and the pound as the so-called QE is eventually embarked. More in ECB Announces QE – ABS and Covered Bond Purchases.

Daily Pivots: (S1) 104.87; (P) 105.12; (R1) 105.48; More…

Despite jumping to as high as 105.70, USD/JPY is still struggling to sustain above 105.43 near term resistance. Indeed, the pair retreats sharply today after disappointing NFP. We’ll remain cautious on whether the pair can sustain above 105.43. In that case, sustained trading above 105.43 will resumption of larger up trend and target 111.62 fibonacci level next. However, below 104.73 will turn bias back to the downside for 103.55/104.27 support zone.

In the bigger picture, at this point, there is no confirmation of medium term reversal yet even though bearish divergence condition was clear in weekly MACD. Attention remains on 100.61 key support level and decisive break there will confirm the bearish case. In that case, deeper decline should be seen back to 38.2% retracement o 75.56 to 105.41 at 94.00. In case of another rise, we’ll focus on reversal as it approaches 50% retracement of 147.68 to 75.56 at 111.62.

GMT
Ccy
Events
Actual
Consensus
Previous
Revised
05:00
JPY
Leading Index Jul P
106.5
107.2
105.9

06:00
EUR
German Industrial Production M/M Jul
1.90%
0.50%
0.30%
0.40%
07:00
CHF
Foreign Currency Reserves Aug
453.8B

453.4B

09:00
EUR
Eurozone GDP Q/Q Q2 P
0.00%
0.00%
0.00%

12:30
USD
Change in Non-farm Payrolls Aug
142K
216K
209K
212K
12:30
USD
Unemployment Rate Aug
6.10%
6.10%
6.20%

12:30
CAD
Net Change in Employment Aug
-11K
10.3K
41.7K

12:30
CAD
Unemployment Rate Aug
7.00%
7.00%
7.00%

14:00
CAD
Ivey PMI Aug

55.7
54.1

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