A brief US payrolls preview

USD/JPY has undergone a strong move lower over the last two days after finding strong sellers at the key ¥110 area.

Source: Bloomberg

Technically, a number of the oscillators are producing bearish signals with the stochastic pulling below 80, while the MACD has fallen below the signal line. There are risks that we could see the pair head down to the 38.2% retracement of the ¥101.51-to-¥110.08 move at ¥106.81. From here I would be keen to see if buyers step in.

On the weekly chart, a bearish outside reversal pattern would be seen on a close below ¥108.26, so it will be interesting to see price action through US trade tonight. Clearly the big catalyst comes in the shape of the US non-farm payrolls report at 22:30 AEST. Recall last month we saw a low 142,000 jobs created, so another poor number could throw up a few questions around the US recovery and cause a few to speculate if the Federal Reserve will be as aggressive as forecast in its rate hike schedule.

As it stands, economists see 215,000 jobs created, with the range being between 265,000 and 155,000. Keep an eye on the underemployment rate (this includes those working part time as they can’t find full-time work), which at 12% is a concern that the Fed has raised. Wages are key, so traders will hone in on the average hourly earnings; if we see a print higher than the forecast 2.2% growth (year-on-year), then we should see the USD bid and clearly a pullback to 106.81 is unlikely to materialise. Naturally USD traders will be keeping a close eye on the bond market as their guide, and selling (resulting in higher yields) will be positive for the USD.

Keep an eye on the S&P 500 as well and as you can see from the daily chart the index tried to reclaim the 2012 uptrend overnight and failed. On the weekly chart the index looks set to close below the longer trend and I would put greater emphasis on this break. There is some belief that bad news could result in good news for stocks, however this will depend on the actual level of job creation. I actually feel a bad number relative to consensus would send stocks spiralling lower on concerns about US growth, rather than rally on hopes that rates will stay lower for longer.

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