Trade Talks to Resume, Risk-On, Yen Falls, US ADP Jobs Rise

Summary: It was risk-on for global markets following China’s announcement that high level trade talks with the US would resume in early October in Washington. Upbeat US data saw August ADP Payrolls add 195,000 jobs which exceeded median expectations of 150,000. Traders will focus on the government’s monthly Payrolls report later today (Sydney 10.30 pm). The rally in risk saw the Dollar soar against the safe-haven Yen to 107.23 (early August highs) before settling at 106.97. USD/CHF climbed 0.48% to 0.9865 (0.9810 yesterday). Sterling continued its move north against the Greenback to 1.2320 (late July highs) after British lawmakers rejected Boris Johnson’s motion to hold a snap election and extend the Brexit deadline for the third time. The Euro closed little changed at 1.1035 (1.1034). The Australian Dollar climbed above 68 cents to 0.6815, up 0.24%. USD/CNH (offshore US Dollar vs Chinese Yuan) dipped to 7.138 from 7.1480.


Treasury prices plunged which saw the US 10-year bond yield jump 9 basis points to 1.56%. Rival global bond yields were also higher. Wall Street stocks rallied. The DOW climbed 1.17% to 26,690.
The S&P 500 gained 1.08% to 2,972. (2,938 yesterday).
In other data reports yesterday, Germany’s Factory Orders dipped to -2.7% in August (vs f/c -1.5%).
US ISM Non-Manufacturing PMI beat forecasts, climbing to 56.4 against 54.0 forecast. US Factory Orders climbed 1.4%, beating expectations of 1.0%.

  • USD/JPY – The rally in risk boosted the Dollar to 107.23 Yen from 106.40, early August highs before settling at 106.97 in New York. Speculative Yen long bets headed for the exits. The increase in long JPY bets versus the Dollar was the most bullish since November 2016.
  • GBP/USD – The British Pound extended its impressive gains versus the Greenback to a 1.2330 close after the UK parliament voted to extend the Brexit deadline, which lessens the chances of a hard exit from the European Union.
  • EUR/USD – The Euro finished little changed at 1.1035 after charging to an overnight and one week high at 1.2354. Better-than-forecast US data and higher US bond yields ahead of tonight’s crucial US Payrolls saw traders prefer to sit on the sidelines on this puppy.

On the Lookout: Friday, Payrolls day. Its all about tonight’s US NFP Employment number which is anybody’s guess following recent conflicting data. US Payroll processor ADP (Automatic Data Processing), a gauge of the private labour market, reported a 195,000 climb in August which beat median forecasts. US ISM Non-Manufacturing PMI also beat forecasts, up at 56.4 (vs 54.0), the highest reading since May. However, the Employment sub-component of the Index was down 53.1 from 56.2. Which was also the case with the Employment component of the US ISM Manufacturing PMI.
Let’s look at the Payrolls number. Median forecasts are for a gain in August NFP of 160,000 (164,000 in July). A gain of 200,000 or more will see the Dollar spike. A gain of 130,000 or less will see the Greenback get dumped.

Trading Perspective: Until the Payrolls number is released, expect last night’s ranges to hold. Unless something gives on the trade front, which is still the market’s main driver. Outside of the Payrolls number, we keep our eyes out for moves in the bond yields. Traders should also keep in mind the latest market positioning. Last night’s moves in the Yen and Sterling are classic. Why? Because both currencies were short market positioning close to extremes. Long JPY bets were at the most bullish since November 2016. Short GBP bets are near yearly highs. We can see from Saxo Bank/Bloomberg’s chart of Non Commercial US Dollar positions against IMM currencies the the DM (red) or Developing Markets (which includes the Aussie) is still short currencies.

SAXO BANK CHART - Non-Commercial Dollar Position against 10 IMM Currency Futures - 06 Sept 2019
SAXO BANK CHART – Non-Commercial Dollar Position against 10 IMM Currency Futures – 06 Sept 2019

The jump in US bond yields were matched by its rivals. Hence there was little change in the Dollar Index (USD/DXY) which closed at 98.40 (98.43 yesterday).

  1. USD/JPY – The Dollar has had a big move back up on the renewal of risk appetite as well as the climb in the US 10-year yield to 1.56% from 1.46% yesterday. USD/JPY traded to an overnight and early August high at 107.231 before settling at 106.98. An easing in global tensions buoyed by hopes of a thaw in the US-China trade conflict has seen speculative JPY longs run for cover and fresh USD buyers emerge. USD/JPY has immediate resistance at 107.20 followed by 107.50. Strong resistance can be found at 108.00. Immediate support lies at 106.50 followed by 106.20. Look to trade a likely range today of 106.70-107.30 until US Payrolls. Trade both sides, be nimble but 106-108 should hold.
  2. EUR/USD – The Euro fell back quickly to 1.1035 from overnight and one week high at 1.10847. The rise in US ADP Jobs creation saw a jump in US bond yields. The Greenback held its ground against most of the Majors, including other EM’s (apart from the Yuan). Markets are still bearish on next week’s ECB policy meeting and rate decision (Sept 12). EUR/USD has immediate support now at 1.1015 (overnight low 1.10167) followed by 109.95. Immediate resistance can be found at 1.1055 and 1.1085. Look for a likely range of 1.1015-1.1065. Just trade that range shag.
  3. AUD/USD – The Australian Dollar gained 0.24% against the Greenback to close at 0.6815 (0.6798 yesterday). While risk sentiment favoured the Aussie Battler, its rally was modest. The focus is on tonight’s US Payrolls number. A strong payrolls report would see the Dollar regain its ground which would weigh on the Aussie. A payrolls number should see the AUD/USD trend higher towards 0.69 cents. On the day, AUD/USD has immediate support at 0.6795 followed by 0.6765. Immediate resistance can be found at 0.6830 (overnight high traded was 0.68298). The next resistance level lies at 0.6870. The latest COT/CFTC report saw net speculative Aussie shorts maintain multi-year highs. The Aussie market is still short, and the risk is still north. Look to trade a likely 0.6795-0.6825 range until the Payrolls number is released.

Happy Friday and trading all.