Overnight Headlines

*USD enjoyed a narrow range day, closing marginally lower

*US stocks closed at record highs after strong earnings

*Consensus NFP now at 858k from 850k in June

USD traded in a tight range and closed modestly lower on the day. USD/JPY saw a solid bounce to the 21-day SMA as US 10-year yields climbed back towards 1.25%. GBP ended higher after the BoE struck a more hawkish tone by clearly signalling some tightening in policy if the economy continues recovering in line with expectations. EUR is looking fragile given its minor downtrend over the past week. EUR/GBP pushed down through 0.85 resistance and should now test 0.8472.

US equities hit all-time highs with energy and financial stocks outperforming while high flying health care underperformed on slightly disappointing earnings. Asian markets are mixed this morning while European and US futures are very modestly in the red.

Market Thoughts – N.F.P

Today’s highlight is obviously the US non-farm payrolls report, always released on the first Friday of the month. It will give us an insight into whether businesses had more success hiring workers in July. Bloomberg consensus now predicts a headline figure of 858k, down from 925k estimates at the start of the week. This is chiefly due to the shocking ADP data which came in around half the expected number with only 330k new jobs created during July.

The spread of analyst estimates ranges from 350k to 1.2 million which says it all. Probably the toughest major data to predict correctly, the report is key for the Fed who are looking for “substantial further progress”. They have clearly stated that job growth is a major determinant for the policy outlook. But labour shortages may still limit jobs growth. This comes in spite of half of US states phasing out emergency unemployment benefits.

US jobs data yesterday continued edging lower with initial jobless claims at 385k versus 400k previously. Continuing claims also fell but both figures remain elevated compared to pre-pandemic levels.

Chart of the Day – DXY edging higher

We’ve picked the widely watched dollar index having covered most of the majors over the past week or so. USD/CAD is still stuck in the 1.2423-1.2604 range with the Canadian employment report due out today. This is expected to cement the view that the BoC will continue to taper in the coming months.

Any headline NPF number over 1million will be a strong buy signal for the dollar, especially versus the euro and yen. DXY resistance above includes the 23.6% Fib level at 92.43 ahead of the recent cycle high at 93.19. Conversely, a weak figure below 500k should see some USD selling. Support on the DXY sits at 91.78/81, with long-term SMAs lurking below here.

For what it’s worth, bond yields have risen this week which tells us that the market is positioning for a positive report. But of course, predictions for NFP are notoriously tough to make!