Non-Farm Payrolls Preview – Charts to watch – DXY – US10Y

Todays NFP figure out of the USA is shaping up to be a pivotal moment in market expectations as to whether we’ve seen peak rates from The Federal Reserve, or if there is more to come and the ramifications that will have for the FX market.

NFP figures are always interesting, traditionally the biggest market moving figure of the month on the US calendar, and against the backdrop of the Feds “data dependent” messaging regarding future rate moves this figure will be a big piece of how the market prices in the result of the September Fed meeting. Currently markets are butting heads with the Fed, only pricing in a higher chance of no more hikes from the Fed, despite Fed guidance and dot plots indicating they are looking at least one more hike this cycle. Current September Fed Fund Future odds are showing only a 17.5% of a hike in the September meeting.

Source:CME Fedwatch tool

Market expectations are for a slowing in payroll growth in July the consensus being 200k nonfarm payrolls to be added to the US economy in July, slightly cooling from the 209k added in June, with the unemployment rate expected to remain unchanged at 3.6%. A big beat or miss on these expectations, a rapid repricing of hike/hold odds would be likely to see volatility and opportunities in FX markets.

Chart to watch:

US Dollar Index (DXY)

DXY has rallied strongly since mid-July as the UST 10 Year yields pushed higher and getting an extra boost from some risk-off this week in equity markets which pushed DXY through the S/R level at 102. DXY found resistance at its upper trend line at around the 102.84 level, seeing some of the recent gains being pared. Also an important factor is the close relationship between US10 yields and DXY, the yields now above 4% where they have struggled to go any higher in the recent past, this will also see a headwind against DXY pushing higher from this level. The levels to watch over todays NFP will be 102.84 to the upside on a big beat, 102 as support to the downside if we get a big miss. Both of those levels will be key in the next trend direction of DXY.

Calendar: