This week’s Non-Farm Payroll update is shaping up to being one of the biggest ones of the year in terms of it’s immediate affect on the next Fed rate move. Fed rate hike expectations have been swinging strongly over the past few weeks on the back of geopolitical updates, data prints, and FOMC member comments. Just over a week ago the skew was firmly on the side of a ‘hold’ in September with cooling inflation numbers coming on the back of last month’s much weaker than expected employment print. However, we have seen since a stronger PCE number than expected and a more hawkish Fed Chair in his keynote speech at Jackson Hole that has seen the odds jump from around a 35% chance of a hike to a 65% chance.
Naturally, the dollar has also swung hard on these moves in rate expectation and traders are expecting more volatility around this week’s big Non-Farm update. The market is expecting to see a 55k increase in jobs in August and anything around that level or above should see rate hike expectations push up and the dollar drive higher, while another surprise shock downside print, like last month’s -23k result could see everything flip once again and the dollar take a beating.
Cable is likely to be one of the strongest movers on the back of the data and is set up nicely for a good move on the release. It’s dropped nearly 200 pips from its late August high at 1.3675 and is not sitting just above two strong support levels in the daily trendline and the 200-day moving average. A weaker number should see the dollar hit and GBPUSD jump higher back into recent ranges, while a stronger print will see those support levels challenged in short order and any breaks likely to result in bigger moves lower, with anything +/- 30k off expectation likely to see a good reaction in the market.
Resistance 2: 1.3675 – August High
Resistance 1: 1.3659 – Trendline Resistance
Support 1: 1.3443 – 200-Day Moving Average
Support 2: 1.3422 – Trendline Support
