Primus Weekly - 5th October

Hi Everyone,

September non-farm payroll data was published last week! This report was the final one prior to the election in November, given the political sensitivity of the data.

The consensus expectation was that around 850,000 jobs were to be added in the month of September, versus 1,370,000 jobs added in August. However, the number came out much lower, with around 661,000 added jobs. This recovery has still been historically rapid, albeit the pace is decelerating. With around 141.7 million Americans having a non-farm job, we are near levels last seen in 2015. Unemployment rate came at around 7.9% which was better than the expected 8.2%; however, this is due to lower labor force participation, which dropped by 700,000 people.

Non-farm payroll announcement generally gets a lot of attention from market participants as jobs data is a crucial input for the financial models the Federal Reserve Bank of the US uses for interest rate policy. The more jobs added and the closer we get to full employment, the faster we can expect a rate hike – this is the basics of the Phillips curve. Or at least that was the rationale previously. As you can remember from our previous reports, the Fed has denounced the use of Phillips curve going forward, and hence we may observe less focus on jobs numbers in the future. Having said that, for the time being market participants still focus on jobs data, given the historical number of unemployed people in the US.

Another important indicator of jobs recovery in the States was published this week – ADP employment change. Automatic Data Processing, Inc., is an American company that processes payroll payments for mostly large private US based enterprises. This print came at 749,000 jobs added in September, versus an expectation of 650,000. How does ADP employment change from non-farm payrolls? Firstly, NFP data consists of both public and private sectors, while ADP only counts for private jobs added. Secondly, NFP data is based on surveys, whilst ADP is actual data from payroll files. Notwithstanding the slight deviation, there’s still a strong correlation between the two. Market reaction to both ADP employment change and non-farm payroll data was lukewarm, not to say non-existent as equities, gold and USD barely moved.

The shocking news of the week came from the US as President Trump announced on Twitter that he had tested positive for COVID-19. Needless to say, this introduces another element of uncertainty to the already volatile election period. There are a few scenarios that may play out – Trump’s campaign may try to cancel the Presidential debates in the coming weeks. Or, Trump may become bedridden with the disease as he is part of the risk group. What’s certain is that both Republicans and Democrats will try to capitalize on this development. On Friday US stocks slipped with S&P500 down 1% and Nasdaq 2.2%, while gold was initially down, only to recover the losses by the end of the day.

Please see the below report for a more detailed analysis of key macro and economic events this week!

Have a great trading week ahead!

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In The Spotlight

Date Currency Event Previous  Consensus 
Monday USD ISM Services PMI 56.9 56.0
Monday EUR Retail Sales (YoY) 0.4% 0.6%
Tuesday USD JOLTS Job Openings 6.6 * 6.0 *
Tuesday AUD RBA Interest Rate Decision 0.25% 0.25%
Wednesday USD FOMC Minutes
Thursday USD Initial Jobless Claims 0.84 * 0.80 *

*In USD millions

Impact

Euro Area Retail Sales
Retail sales measures the change in Euro zone retail sector. With the increase in COVID-19 cases in Europe, a number of countries have re-introduced partial lockdowns which will hamper the recovery in retail sales. Moreover, a number of more affluent consumers are also part of the risk groups – for instance the so-called Baby Boomer generation. With such crucial group forced to stay at home, we can expect a negative impact on the retail sales print. Better than expected retail sales number is generally positive for EUR, while worse than expected might have negative impact for EUR.

ISM Services PMI
Services PMI reflects the business conditions in the US non-manufacturing sector. Services constitute around 67% of the US GDP and hence have a significant impact on the GDP, and also to the currency. Better than expected print, and a number above 50, is generally bullish for USD. A lower than expected and a print below 50 is generally bearish for USD.

Market Sentiment

EURUSD paid has moved once again higher, finding support near 1.6889 levels which is 38% Fibonacci retracement level, measured from June 2020 lows. 21-day and 34-day exponential moving averages seem to be forming a short-term resistance level near 1.1750. Exponential moving averages stacked from 50-day, 34-day, 21-day to 8-day in a rainbow fashion would indicate a negative short-term trend, pushing the pair lower. However, as the price is still above 200-day simple moving average, indicating a positive long-term trend. Slow Stochastic at 68 levels indicate the pair is overbought while RSI near 55 is neutral. The tight trading range last week may lead us to another period of consolidation for EURUSD.

Support: 1.6889
Resistance: 1.1750

NZDUSD is consolidating at 0.6642 levels which is near 21-day, 34-day and 50-day exponential moving averages, after recovering from September lows of 0.6544. Such overlap of moving averages would indicate that the short-term and medium-term volatility has been compressed and the pair is potentially forming a new consolidation zone. Resistance level has formed near 0.6654 which is also 50% Fibonacci retracement level, measured from cycle high of 0.6796 on September 19th.

Support: 0.6602
Resistance: 0.6654

USDJPY pair has found support at 8-day exponential moving average 105.41. Moving averages are stacked in an inverse rainbow manner (200-day > 100-day > 50-day > 34-day > 21-day > 8-day) which indicates a negative short and long-term trend. RSI is neutral at 68 while slow stochastic is 68 which indicates oversold levels.

Support: 105.41
Resistance: 105.80

The pair has recovered some of the losses from the week of September Swiss National Bank meeting as no new announcements were made. Support has formed near 0.9180 which is also 34-day exponential moving average level and coincides with long-term resistance levels that has been in place since July 2020.

Support: 0.9180
Resistance: 0.9211

Kaia Parv, CFA, is an experienced Portfolio and Investment Manager with exposure to both public and private markets. Before joining FXPRIMUS, Kaia was a Senior Investment Associate at EFA Group and a Vice President in Bank of America Merrill Lynch.

Any opinions, news, research, analyses, prices or other information contained here are provided as general market commentary and do not constitute investment advice. FXPRIMUS does not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.

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